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Household Inflation Expectation and Consumption: Evidence from Japan

Author

Listed:
  • Jinnai, Ryo
  • Mikami, Tomoaki
  • Okuda, Tatsushi
  • Nakajima, Jouchi

Abstract

We study household inflation expectation and consumption decisions jointly, using the micro-levelpanel dataset based on household surveys in Japan when nominal interest rates stay at the effectivelower bound. We find that a rise in household inflation expectation generally leads to a rise in currentconsumption relative to future. However, we find that this relation may not be robust in somesituations. Specifically, changes in household inflation expectations along with the fluctuation in foodand energy prices have a little impact on consumption, whereas changes in their inflation expectationsdue to other factors have a strong impact. Building a formal model and calibrate its parameters, weshow that these results can be interpreted as the householdʼs optimal behavior under imperfectinformation.

Suggested Citation

  • Jinnai, Ryo & Mikami, Tomoaki & Okuda, Tatsushi & Nakajima, Jouchi, 2021. "Household Inflation Expectation and Consumption: Evidence from Japan," Economic Review, Hitotsubashi University, vol. 72(3), pages 268-295, July.
    • Handle: RePEc:hit:ecorev:v:72:y:2021:i:3:p:268-295
    DOI: 10.15057/71970
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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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