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Fueling expectations: The causal impact of gas prices on Inflation Expectations

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  • Jo, Yoon Joo
  • Klopack, Ben

Abstract

We investigate the effects of temporary state-level gas tax suspensions on inflation expectations. Using a difference-in-differences strategy, we show that households in states that lower the gas tax reduce their inflation expectations, but the impact of the policy depends on how much of the tax cut was passed through to prices. We provide new causal evidence of the link between gas prices and household inflation expectations and demonstrate that gas prices play a more significant role in shaping inflation expectations than previously suggested in the literature. We also show experimental evidence that informing households about the tax reduction leads them to adjust their inflation expectations downward. However, we do not find evidence that temporary gas tax suspensions had a stimulative effect on consumption. These findings underscore the potential for alternative policy levers to influence household beliefs and behavior.

Suggested Citation

  • Jo, Yoon Joo & Klopack, Ben, 2025. "Fueling expectations: The causal impact of gas prices on Inflation Expectations," Journal of Monetary Economics, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:moneco:v:153:y:2025:i:c:s0304393225000686
    DOI: 10.1016/j.jmoneco.2025.103797
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    More about this item

    Keywords

    Inflation expectations; Survey; Gas prices; Gas tax holiday;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • 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
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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