When the fog clears: the effect of reduced inflation uncertainty on households' financial behaviour

Johannes Fischer, Christoph Herler and Philip Schnattinger
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Johannes Fischer: Deutsche Bundesbank
Christoph Herler: Bank of England

No 1333, Bank of England Staff Working Paper series from Bank of England

Abstract: We study the causal effect of inflation uncertainty on household consumption and saving decisions. Using a representative household survey, we separate the effects of uncertainty from expected inflation by providing respondents with randomised information about the first and second moments of inflation forecasts. Lower inflation uncertainty raises planned spending and expected income, but reduces uncertainty about expected income and interest rates. Higher planned spending is driven by less precautionary saving. In the months following the treatment, households reduce their monthly savings, but report an increase in fixed‑return asset holdings. Finally, we show that households primarily attribute changes in inflation uncertainty to variation in supply‑side shocks.

Keywords: Inflation; uncertainty; household spending and saving; household finance (search for similar items in EconPapers)
JEL-codes: D14 E21 E24 E31 E50 G51 (search for similar items in EconPapers)
Pages: 71
Date: 2025-06-27
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:023255

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