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Inflation expectations and choices of households


  • Vellekoop, Nathanael
  • Wiederholt, Mirko


Do household in ation expectations affect consumption-savings decisions? We link survey data on quantitative in ation expectations to administrative data on income and wealth. We document that households with higher in ation 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 in ation 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 in ation expectations are more likely to acquire a car and acquire higher-value cars. In addition, we provide a quantitative model of household-level in ation expectations.

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  • Vellekoop, Nathanael & Wiederholt, Mirko, 2019. "Inflation expectations and choices of households," SAFE Working Paper Series 250, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  • Handle: RePEc:zbw:safewp:250

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    References listed on IDEAS

    1. Philippe Andrade & Gaetano Gaballo & Eric Mengus & Benoît Mojon, 2019. "Forward Guidance and Heterogeneous Beliefs," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 1-29, July.
    2. Patton, Andrew J. & Timmermann, Allan, 2010. "Why do forecasters disagree? Lessons from the term structure of cross-sectional dispersion," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 803-820, October.
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    Cited by:

    1. Coibion, Olivier & Georgarakos, Dimitris & Gorodnichenko, Yuriy & van Rooij, Maarten, 2019. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," IZA Discussion Papers 12498, Institute of Labor Economics (IZA).
    2. Goldfayn-Frank, Olga & Wohlfart, Johannes, 2018. "How do consumers adapt to a new environment in their economic forecasting? Evidence from the German reunification," IMFS Working Paper Series 129, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    3. repec:oup:jeurec:v:16:y:2018:i:3:p:563-603. is not listed on IDEAS
    4. George-Marios Angeletos, 2017. "Frictional Coordination," NBER Working Papers 24178, National Bureau of Economic Research, Inc.
    5. Jarko Fidrmuc & Christa Hainz & Werner Hölzl, 2018. "Individual Credit Market Experience and Perception of Aggregate Bank Lending. Evidence from a Firm Survey," WIFO Working Papers 574, WIFO.
    6. Lieb, Lenard & Schuffels, Johannes, 2019. "Inflation expectations and consumer spending: the role of household balance sheets," Research Memorandum 022, Maastricht University, Graduate School of Business and Economics (GSBE).
    7. George-Marios Angeletos & Zhen Huo, 2018. "Collective Myopia and Habit," 2018 Meeting Papers 236, Society for Economic Dynamics.
    8. Stanisławska, Ewa & Paloviita, Maritta & Łyziak, Tomasz, 2019. "Assessing reliability of aggregated inflation views in the European Commission consumer survey," Research Discussion Papers 10/2019, Bank of Finland.
    9. repec:ces:ifowes:v:18:y:2019:i:03:p:01-26 is not listed on IDEAS

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