What Matters in Households' Inflation Expectations?

Eric Mengus, Philippe Andrade and Erwan Gautier

No 14905, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide new survey evidence on how households’ inflation expectations matter for their spending. A large share of households expects prices to remain stable instead of increasing. Such a belief is linked to individual experience with non-durable goods frequently purchased. Households expecting stable prices have a lower propensity to buy durable goods than those expecting positive inflation. In contrast, differences across households expecting positive inflation are associated with insignificant differences in durable consumption decisions. That behavioral distortion limits the impact of household inflation expectations on aggregate demand compared to the standard New Keynesian model.

Keywords: Inflation expectation channel; Heterogeneous beliefs; Households’ spending; Stabilization policies (search for similar items in EconPapers)
JEL-codes: D12 D84 E21 E31 E52 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: What matters in households’ inflation expectations? (2023)
Working Paper: What Matters in Households' Inflation Expectations? (2021)
Working Paper: What Matters in Households’ Inflation Expectations? (2020)
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