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Inflation Expectations and Choices of Households

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  • Nathanael Vellekoop

    (Goethe University Frankfurt)

  • Mirko Wiederholt

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research)

Abstract

Do household inflation expectations affect consumption-savings decisions? We link survey data on quantitative inflation expectations to administrative data on income and wealth. We document that households with higher inflation expectations save less. Estimating panel data models with year and household fixed effects, we find that a one percentage point increase in a household's inflation expectation over time is associated with a 250-400 euro reduction in the household's change in net worth per year on average. We also document that households with higher inflation expectations are more likely to acquire a car and acquire higher-value cars. In addition, we provide a quantitative model of household-level inflation expectations.

Suggested Citation

  • Nathanael Vellekoop & Mirko Wiederholt, 2019. "Inflation Expectations and Choices of Households," Working Papers hal-03878694, HAL.
    • Handle: RePEc:hal:wpaper:hal-03878694
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03878694
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    References listed on IDEAS

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    1. Francesco D'Acunto & Daniel Hoang & Michael Weber, 2018. "Unconventional Fiscal Policy," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 519-523, May.
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