State-dependent inflation expectations and consumption choices

Michal Marenčák

No WP 10/2023, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: This paper shows that the impact of inflation expectations on consumption depends on prevailing inflation. Beyond the quantitative-qualitative distinction in inflation expectations, differentiating among qualitative expectations of higher, constant, or positive inflation is key. Qualitative expectations have a greater impact on consumption than expected levels and changes in inflation, and the significance of specific qualitative expectations is contingent upon the prevailing inflation conditions. The effect of expecting qualitatively higher inflation on the willingness to consume is more pronounced during periods of inflation surges than in times of low and stable inflation, and is insignificant during periods of decline or deflation. Policy implications are discussed.

JEL-codes: D1 D8 E2 E3 E5 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2023-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:svk:wpaper:1102

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