Expected inflation and saving in categories

This paper examines how inflation expectations relate to household saving behavior across saving categories. We apply a generalized ordered logit model to survey data from 4, 824 German households during a high inflation period (March 2023). We find that income and precautionary motives dominate substitution effects: higher inflation expectations are associated with maintaining or increasing overall savings. Our disaggregated analysis reveals a non-linear threshold effect - only households with strongly elevated inflation expectations exhibit economically significant be- havioral responses, consistent with flight-to-liquidity behavior toward cash. De- composing saving shifts by inflation expectation level reveals further heterogeneity: the cash-bond substitution documented in the full sample is driven exclusively by low inflation expectation households, while high inflation expectation households accumulate both instruments simultaneously, reflecting broad portfolio expansion rather than reallocation. We further find that only dynamic - not static - infla- tion expectation formation is associated with behavioral responses. These findings have ambiguous implications for bank funding stability.