Public Debt and Household Inflation Expectations

Francesco Grigoli () and Damiano Sandri

No 2023/066, IMF Working Papers from International Monetary Fund

Abstract: We use randomized controlled trials in the US, UK, and Brazil to examine the causal effect of public debt on household inflation expectations. We find that people underestimate public debt levels and increase inflation expectations when informed about the correct levels. The extent of the revisions is proportional to the size of the information surprise. Confidence in the central bank considerably reduces the sensitivity of inflation expectations to public debt. We also show that people associate high public debt with stagflationary effects and that the sensitivity of inflation expectations to public debt is considerably higher for women and low-income individuals.

Keywords: Capital controls; capital outflows; financial crises; inflation expectation; household inflation expectation; increase inflation expectation; sensitivity of inflation expectation; public debt level; Inflation; Inflation targeting; Quasi-fiscal operations; Global (search for similar items in EconPapers)
Pages: 37
Date: 2023-03-17
New Economics Papers: this item is included in nep-mon
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Working Paper: Public debt and household inflation expectations (2023)
Working Paper: Public debt and household inflation expectations (2023)
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