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Inflation expectations, consumption and the lower bound: Micro evidence from a large multi-country survey

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  • Duca-Radu, Ioana
  • Kenny, Geoff
  • Reuter, Andreas

Abstract

Using a large multi-country survey and new pseudo panel dataset, we investigate the spending response of consumers to their beliefs about future inflation. The analysis exploits the deviation of expected inflation from the currently perceived inflation rate - a choice motivated by local approximation of the traditional Euler equation. This helps control for unobserved heterogeneity and highlights a positive and economically relevant spending response that is generalised in the population and across countries. Also a stronger positive response is observed when the lower bound is binding, thus lending credence to the stabilisation properties of higher inflation expectations during such episodes.

Suggested Citation

  • Duca-Radu, Ioana & Kenny, Geoff & Reuter, Andreas, 2021. "Inflation expectations, consumption and the lower bound: Micro evidence from a large multi-country survey," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 120-134.
    • Handle: RePEc:eee:moneco:v:118:y:2021:i:c:p:120-134
    DOI: 10.1016/j.jmoneco.2020.03.005
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    More about this item

    Keywords

    Consumer inflation expectations; Consumption; Lower bound; Micro data;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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