What Matters in Households Inflation Expectations?

Philippe Andrade, Erwan Gautier and Eric Mengus

Working papers from Banque de France

Abstract: We provide evidence that households discretize their inflation expectations so that what matters for durable consumption decisions is the broad inflation regime they expect. Using survey data, we document that a large share of the adjustment in the average inflation expectation comes from the change in the share of households expecting stable prices; these households also consume relatively less than the ones expecting positive inflation. In contrast, variations of expectations across households expecting a positive inflation rate are associated with much smaller differences in individual durable consumption choices. We illustrate how this mitigates the expectation channel of monetary policy.

Keywords: Inflation Expectations; Euler Equation; Survey Data; Imperfect Information; Adjustment Costs; Stabilization policies (search for similar items in EconPapers)
JEL-codes: D12 D84 E21 E31 E52 (search for similar items in EconPapers)
Pages: 102 pages
Date: 2020
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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https://publications.banque-france.fr/sites/defaul ... /documents/wp770.pdf

Related works:
Journal Article: What matters in households’ inflation expectations? (2023)
Working Paper: What Matters in Households' Inflation Expectations? (2021)
Working Paper: What Matters in Households' Inflation Expectations? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:770

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