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Inflation expectations of households and the upgrading channel

Sumit Agarwal, Yeow Hwee Chua and Changcheng Song

Journal of Monetary Economics, 2022, vol. 128, issue C, 124-138

Abstract: Motivated by direct evidence that households tend to purchase higher quality goods over time (consumption upgrading), we use a survey experiment to study the relationship between consumption upgrading and households’ beliefs about inflation. We find that providing price information on better-quality products will lead to higher inflation expectations. The effects on inflation expectations are smaller when price information on both higher- and lower-quality products is made available, suggesting that product replacement increases inflation expectations. Additional tests show that our results are not driven by mixing price with quality or numeracy. Our findings highlight the relationship between product replacement, product variety, and inflation expectations.

Keywords: Inflation expectations; Consumption upgrading; Product Replacement; Survey Experiment (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jmoneco.2022.04.003

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