Inflation expectations, consumption and the lower bound: Micro evidence from a large multi-country survey

Ioana Duca-Radu, Geoff Kenny and Andreas Reuter

Journal of Monetary Economics, 2021, vol. 118, issue C, 120-134

Abstract: Using a large multi-country survey and new pseudo panel dataset, we investigate the spending response of consumers to their beliefs about future inflation. The analysis exploits the deviation of expected inflation from the currently perceived inflation rate - a choice motivated by local approximation of the traditional Euler equation. This helps control for unobserved heterogeneity and highlights a positive and economically relevant spending response that is generalised in the population and across countries. Also a stronger positive response is observed when the lower bound is binding, thus lending credence to the stabilisation properties of higher inflation expectations during such episodes.

Keywords: Consumer inflation expectations; Consumption; Lower bound; Micro data (search for similar items in EconPapers)
JEL-codes: D12 D84 E21 E31 E52 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (40)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:118:y:2021:i:c:p:120-134

DOI: 10.1016/j.jmoneco.2020.03.005

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