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Inflation Expectations, Wealth Perception, and Consumption Expenditure

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  • Alpha C. Chiang
  • Stephen M. Miller

Abstract

The literature on wealth perception has been focused on the tax discounting of government bonds and, to a lesser extent, the Pesek-Saving effect. The authors consider here, in addition, the effects of expected inflation on wealth perception. In the resulting broadened framework, they find empirically that there is overwhelming expected-inflation discounting of money, but little or no tax discounting of bonds. This has far-reaching policy implications that are contrary to conventional wisdom. Based on an examination of equilibrium consumption, bond-financed budget deficits are, surprisingly, found to be more stimulative than money-financed deficits. More importantly, open-market operations not only turn out to be the least potent, but can in fact produce perverse effects.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume14/V14N1P27_38.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 14 (1988)
Issue (Month): 1 (Jan-Mar)
Pages: 27-38

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Handle: RePEc:eej:eeconj:v:14:y:1988:i:1:p:27-38

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Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
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Web page: http://www.ramapo.edu/eea/journal.html
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  1. Kochin, Levis A, 1974. "Are Future Taxes Anticipated by Consumers? Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(3), pages 385-94, August.
  2. Brunner, Karl & Meltzer, Allan H, 1972. "Money, Debt, and Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 951-77, Sept.-Oct.
  3. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  4. Tanner, J Ernest, 1970. "Empirical Evidence on the Short-Run Real Balance Effect in Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(4), pages 473-85, November.
  5. Seater, John J, 1982. "Are Future Taxes Discounted?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(3), pages 376-89, August.
  6. Smith, Warren L, 1970. "On Some Current Issues in Monetary Economics: An Interpretation," Journal of Economic Literature, American Economic Association, vol. 8(3), pages 767-82, September.
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Cited by:
  1. Alpha C. Chiang & Stephen M. Miller, 1998. "The Perception of Government Bonds and Money as Net Wealth: An Integrated Approach," Eastern Economic Journal, Eastern Economic Association, vol. 24(4), pages 435-448, Fall.

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