IMF Working Papers

Aggregate Shocks and the Formation of Preferences and Beliefs

By Paola Giuliano, Antonio Spilimbergo

September 13, 2024

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Format: Chicago

Paola Giuliano, and Antonio Spilimbergo. "Aggregate Shocks and the Formation of Preferences and Beliefs", IMF Working Papers 2024, 195 (2024), accessed December 21, 2024, https://doi.org/10.5089/9798400288654.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

A growing body of work has shown that aggregate shocks affect the formation of preferences and beliefs. This article reviews evidence from sociology, social psychology, and economics to assess the relevance of aggregate shocks, whether the period in which they are experienced matters, and whether they alter preferences and beliefs permanently. We review the literature on recessions, inflation experiences, trade shocks, and aggregate non-economic shocks including migrations, wars, terrorist attacks, pandemics, and natural disasters. For each aggregate shock, we discuss the main empirical methodologies, their limitations, and their comparability across studies, outlining possible mechanisms whenever available. A few conclusions emerge consistently across the reviewed papers. First, aggregate shocks impact many preferences and beliefs, including political preferences, risk attitudes, and trust in institutions. Second, the effect of shocks experienced during young adulthood is stronger and longer lasting. Third, negative aggregate economic shocks generally move preferences and beliefs to the right of the political spectrum, while the effects of non-economic adverse shocks are more heterogeneous and depend on the context.

Subject: Economic growth, Economic recession, Environment, Inflation, Migration, Natural disasters, Population and demographics, Prices

Keywords: Beliefs to the right, Economic recession, Economic shock, Effect of shock, Europe, Global, Inflation, Inflation experience, Migration, Natural disasters, Trade shock

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