How do inflation expectations impact consumer behaviour?∗

Content Provider	Semantic Scholar
Author	Duca, Ioana A. Kenny, Geoff Reuter, Andreas
Copyright Year	2016
Abstract	This paper investigates empirically the relationship between consumer inflation expectations and spending using individual consumer level data from the European Union Joint Harmonised Business and Consumer Survey. We document that for the Euro Area this relationship is positive, that is, higher expected inflation which reduces real interest rates is associated with an increase in the consumer′s likelihood of spending. More specifically, for a 1 percentage point (pp) increase in inflation expectations we find a 0.16 to 0.33 pp increase in the probability that a consumer will spend in the current period. This relationship is stronger when the effective lower bound is binding. Country analysis corroborates the pooled results. All countries in the sample except one exhibit a positive, although heterogeneous, relationship between consumer inflation expectations and the likelihood of spending. Finally, using these estimated probabilities, we indirectly estimate the impact of a gradual increase in inflation expectations on actual real consumption, and find that this impact is also positive in line with economic theory. JEL classification: D12, D84, E21, E31, E52
File Format	PDF HTM / HTML
Alternate Webpage(s)	https://ec.europa.eu/info/sites/info/files/file_import/8_geoff_kenny_ecb_ppt_0.pdf
Alternate Webpage(s)	https://ec.europa.eu/info/sites/info/files/file_import/8_geoff_kenny_ecb_paper_0.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article