Citation

Discussion Paper Details

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Title: What Matters in Households' Inflation Expectations?

Author(s): Philippe Andrade, Erwan Gautier and Eric Mengus

Publication Date: June 2020

Keyword(s): heterogeneous beliefs, Households' spending, Inflation expectation channel and Stabilization policies

Programme Area(s): Monetary Economics and Fluctuations

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14905

Bibliographic Reference

Andrade, P, Gautier, E and Mengus, E. 2020. 'What Matters in Households' Inflation Expectations?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14905