Template-type: ReDif-Paper 1.0
Author-Name: Lieb, Lenard
Author-workplace-name: RS: GSBE Theme Data-Driven Decision-Making, Macro, International & Labour Economics
Author-Name: Schuffels, Johannes
Author-workplace-name: RS: GSBE Theme Data-Driven Decision-Making, Macro, International & Labour Economics
Title: Inflation expectations and consumer spending: the role of household balance sheets
Abstract: Research interest in the reaction of consumption to expected inflation has increased sharply in recent years due to efforts by central banks to kick-start demand through higher inflation expectations. We contribute to this literature by analyzing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Many channels are conceivable:<br/>an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget constrained or sufficiently liquid to shift funds between consumption and savings. We use household-level information on balance sheets, vehicle expenditures and inflation expectations from the Dutch Central Bank’s Household Survey. We find evidence for a relation between a household’s expected inflation and the probability to have positive expenditures<br/>on durables. This effect is stronger for households with low net worth. We find no evidence of such effects on the amount of durable expenditures.
Classification-JEL: d84,e31,e21
Series: GSBE Research Memoranda
Creation-Date: 20190820
Number: 022
File-URL: https://cris.maastrichtuniversity.nl/ws/files/36063710/RM19022.pdf
File-Format: application/pdf
File-Size: 1368684
Handle: Repec:unm:umagsb:2019022
DOI: 10.26481/umagsb.2019022