FISCAL POLICY AND HOUSEHOLDS’ INFLATION EXPECTATIONS: EVIDENCE FROM A RANDOMIZED CONTROL TRIAL

Michael Weber and Yuriy Gorodnichenko
Authors registered in the RePEc Author Service: Olivier Coibion

No 15821, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Rising government debt levels around the world are raising the specter that authorities might seek to inflate away the debt. In theoretical settings where fiscal policy “dominates†monetary policy, higher debt without offsetting changes in primary surpluses should lead households to anticipate this higher inflation. Are household inflation expectations sensitive to fiscal considerations in practice? We field a large randomized control trial on U.S. households to address this question by providing randomly chosen subsets of households with information treatments about the fiscal outlook and then observing how they revise their expectations about future inflation as well as taxes and government spending. We find that information about the current debt or deficit levels has little impact on inflation expectations but that news about future debt leads them to anticipate higher inflation, both in the short run and long run. News about rising debt also induces households to anticipate rising spending and a higher rate of interest for government debt.

Date: 2021-02
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (22)

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