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Households' response to the wealth effects of inflation

Author

Listed:
  • Schnorpfeil, Philip
  • Weber, Michael
  • Hackethal, Andreas

Abstract

We study households' response to the redistributive effects of inflation combining bank data with an information experiment during historic inflation. Households are generally well-informed about inflation and concerned about its wealth impact; yet, while knowledge about inflation eroding nominal assets is widespread, most households are unaware of nominal-debt erosion. When informed about the latter, households view nominal debt more positively and increase estimates of their real net wealth. These changes causally affect actual consumption and hypothetical debt decisions. Our findings suggest real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.

Suggested Citation

  • Schnorpfeil, Philip & Weber, Michael & Hackethal, Andreas, 2024. "Households' response to the wealth effects of inflation," CFS Working Paper Series 728, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:308805
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    More about this item

    Keywords

    Inflation Beliefs; Information Treatment; Consumption; Monetary Policy;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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