Inflation Expectations and Choices of Households

Nathanael Vellekoop (1) , Mirko Wiederholt (2, 3)

1 Goethe-University Frankfurt am Main
2 ECON - Département d'économie (Sciences Po)
3 CEPR - Center for Economic Policy Research

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

Domains: Economics and Finance

Nathanael Vellekoop, Mirko Wiederholt. Inflation Expectations and Choices of Households. 2019. ⟨hal-03878694⟩