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How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial

Author

Listed:
  • Olivier Coibion
  • Dimitris Georgarakos
  • Yuriy Gorodnichenko
  • Maarten van Rooij

Abstract

We implement a survey of Dutch households in which random subsets of respondents receive information about inflation. The resulting exogenously generated variation in inflation expectations is used to assess how expectations affect consumption decisions. The causal effects of reduced inflation expectations on nondurable spending are imprecisely estimated, but there is a sharp positive effect on durable spending. This is likely driven by the fact that Dutch households seem to become more optimistic about their real income and aggregate spending when they decrease their inflation expectations. We find little role for cognitive or financial constraints in explaining spending responses.

Suggested Citation

  • Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Maarten van Rooij, 2023. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 109-152, July.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:3:p:109-52
    DOI: 10.1257/mac.20200445
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    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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