Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235375 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9005
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We provide survey evidence on how households’ inflation expectations matter for their spending highlighting a behavioral distortion compared to the New Keynesian setup. 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 consume less 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 distortion implies that managing aggregate demand through households’ inflation expectations is limited and can run out of ammunition.
Subjects: 
behavioural macroeconomics
heterogeneous beliefs
expectation formation
households’ spending
inflation expectation channel
stabilization policies
JEL: 
D12
D83
E21
E31
E52
Document Type: 
Working Paper
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