Managing Households’ Expectations with Unconventional Policies

Francesco D’Acunto, Daniel Hoang and Michael Weber

The Review of Financial Studies, 2022, vol. 35, issue 4, 1597-1642

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. Policy makers 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 inflation 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

JEL-codes: D15 D84 E31 E52 E62 G51 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (30)

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Working Paper: Managing households' expectations with unconventional policies (2021)
Working Paper: Managing Households' Expectations with Unconventional Policies (2020)
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