Inflation disasters and consumption

Jane Ryngaert

Journal of Monetary Economics, 2022, vol. 129, issue S, S67-S81

Abstract: Consumers with longer-tailed subjective probability distributions of inflation anticipate lower real consumption growth and are more favorably inclined to purchasing durable goods. I propose a model in which rare inflation disasters increase the cost of future credit by raising debt issuance costs, prompting consumers to stock up on debt and move purchases to the present. Consistent with this theory, consumers with longer-tailed distributions anticipate higher future interest rates. The effects of anticipated tail risks on consumption plans are more pronounced among credit market participants.

Keywords: Inflation expectations; Expected consumption; Issuance costs; Tail risk (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:129:y:2022:i:s:p:s67-s81

DOI: 10.1016/j.jmoneco.2022.03.002

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