Inflation Expectations and Choices of Households

Nathanaël Vellekoop and Mirko Wiederholt (mirko.wiederholt@gmail.com)
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Mirko Wiederholt: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research

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Abstract: Do household inflation expectations affect consumption-savings decisions? We link survey data on quantitative inflation expectations to administrative data on income and wealth. We document that households with higher inflation expectations save less. Estimating panel data models with year and household fixed effects, we find that a one percentage point increase in a household's inflation expectation over time is associated with a 250-400 euro reduction in the household's change in net worth per year on average. We also document that households with higher inflation expectations are more likely to acquire a car and acquire higher-value cars. In addition, we provide a quantitative model of household-level inflation expectations.

Date: 2019-04
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03878694
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Working Paper: Inflation Expectations and Choices of Households (2019)
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