The Effect of Inflation Uncertainty on Household Expectations and Spending

Olena Kostyshyna and Luba Petersen

No 32939, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using a new Canadian household survey, we examine how inflation expectations and un-certainty shape spending. Randomized information treatments provide the first moment of various inflation statistics, with or without second moments, generating variation in both expectations and uncertainty. All information types lower expectations and uncertainty. Communicating uncertainty does not shift expectation or uncertainty levels, but raises the probability households assign to inflation near the communicated ranges. In Nielsen IQ Homescan data, higher inflation uncertainty persistently reduces spending on both durables and non-durables over the year following treatment, while higher inflation expectations raise durable spending one month after treatment.

JEL-codes: C93 D84 E59 E7 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-ipr and nep-mon
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