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Evaluating the Link between Consumers' Savings Portfolio Decisions, their Inflation Expectations and Economic News

  • Eva Arnold

    ()

    (Universität Hamburg (University of Hamburg))

  • Lena Dräger

    (Universität Hamburg (University of Hamburg))

  • Ulrich Fritsche

    ()

    (Universität Hamburg (University of Hamburg), KOF ETH Zurich and Research Program on Forecasting, GWU Washington, D.C.)

Utilizing the microdata from a first cross-section of a new household survey at the University of Hamburg, we analyse if consumers respond to their own inflation expectations and economic news that they have observed recently when they plan to adjust their savings portfolio in the next year. We extract three factors to control for consumers' socio-demographic and personality characteristics. Our estimates from the socio-demographic factors suggest that high education and personal income matter most for a planned savings portfolio adjustment. Interestingly, higher inflation expectations only affect planned savings adjustments due to higher interest rates, suggesting that consumers have a Taylor-rule-type relation in mind. Disentangling the effects of economic news, we find that news on higher inflation lead consumers to consider protection against inflation, safety of the portfolio and higher interest rates as reasons for a savings adjustment. In addition positive news on the business cycle and on the Euro crisis increase the likelihood that consumers consider a savings adjustment to protect against inflation or due to higher expected interest rates, respectively. Overall, it seems that economic news observed are incorporated into decisions regarding a planned savings portfolio adjustment, while inflation expectations play an indirect role.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_2_2014.pdf
File Function: First version, 2014
Download Restriction: no

Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 201402.

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Length: 17 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:hep:macppr:201402
Contact details of provider: Web page: http://www.wiso.uni-hamburg.de/dwp

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  1. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
  2. Rüdiger Bachmann & Tim O. Berg & Eric R. Sims, 2015. "Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 1-35, February.
  3. Wilbert van der Klaauw & Wandi Bruine de Bruin & Giorgio Topa & Basit Zafar & Olivier Armantier, 2012. "Inflation Expectations and Behavior: Do Survey Respondents Act on their Beliefs?," 2012 Meeting Papers 121, Society for Economic Dynamics.
  4. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
  5. Christina D. Romer & David H. Romer, 2013. "The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn't Matter," American Economic Review, American Economic Association, vol. 103(3), pages 55-60, May.
  6. Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
  7. Eric R. Sims, 2012. "Inflation Expectations and Readiness to Spend, Cross-Sectional Evidence," Working Papers 015, University of Notre Dame, Department of Economics, revised Mar 2012.
  8. Howard, David H, 1978. "Personal Saving Behavior and the Rate of Inflation," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 547-54, November.
  9. Deaton, Angus S, 1977. "Involuntary Saving through Unanticipated Inflation," American Economic Review, American Economic Association, vol. 67(5), pages 899-910, December.
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