Managing Households' Expectations with Unconventional Policies

Francesco D’Acunto, Daniel Hoang and Michael Weber

No 27399, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: With a binding effective lower bound on interest rates and large government deficits, conventional policies are unviable and policymakers resort to unconventional policies, which target households' expectations directly. Using unique micro data and a difference-in-differences strategy, we assess the effectiveness of unconventional fiscal policy and forward guidance, both of which aim to stimulate consumption via raising households' inflation expectations. All households' inflation expectations and spending plans react to unconventional fiscal policy. Instead, households, contrary to experts, do not react to forward guidance. We argue that policies aiming to affect households directly are ineffective if (non-expert) households do not understand them.

JEL-codes: D12 D84 D91 E21 E31 E52 E65 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: AP CF EFG ME
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Citations: View citations in EconPapers (26)

Published as Francesco D’Acunto & Daniel Hoang & Michael Weber & Tarun Ramadorai, 2022. "Managing Households’ Expectations with Unconventional Policies," The Review of Financial Studies, vol 35(4), pages 1597-1642.

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Journal Article: Managing Households’ Expectations with Unconventional Policies (2022)
Working Paper: Managing households' expectations with unconventional policies (2021)
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