Managing households' expectations with unconventional policies

Francesco D'Acunto, Daniel Hoang and Michael Weber

No 148, Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Management

Abstract: Binding lower bounds on interest rates and large government deficits limit the scope of fiscal and monetary policies to stimulate households' spending through financial intermediaries and firms. Policymakers have thus been implementing unconventional policies that aim to increase households' spending directly through managing their expectations. We first show theoretically and empirically that higher in ation expectations increase households' consumption. We then design a difference-in-differences strategy to assess the effectiveness of unconventional fiscal policy and forward guidance, both of which aim to raise aggregate demand via managing expectations. Whereas unconventional fiscal policy increases households' expectations and spending, forward guidance announcements do not.

Keywords: Expectations; Household Finance; Heterogeneous Beliefs; Fiscal Policy; Monetary Policy; Cognitive Abilities; Behavioral Macroeconomics; Macroeconomics with Micro Data (search for similar items in EconPapers)
JEL-codes: D12 D84 D91 E21 E31 E32 E52 E65 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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https://www.econstor.eu/bitstream/10419/232545/1/1752255194.pdf (application/pdf)

Related works:
Journal Article: Managing Households’ Expectations with Unconventional Policies (2022)
Working Paper: Managing Households' Expectations with Unconventional Policies (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kitwps:148

DOI: 10.5445/IR/1000130761

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