Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238080 
Year of Publication: 
2020
Series/Report no.: 
Working Papers No. 20-18
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
We provide evidence that households discretize their inflation expectations so that what matters for durable consumption decisions is the broad inflation regime they expect. Using survey data, we document that a large share of the adjustment in the average inflation expectation comes from the change in the share of households expecting stable prices; these households also consume relatively less than the ones expecting positive inflation. In contrast, variations of expectations across households expecting a positive inflation rate are associated with much smaller differences in individual durable consumption choices. We illustrate how this mitigates the expectation channel of monetary policy.
Subjects: 
inflation expectations
Euler equation
survey data
imperfect information
adjustment costs
stabilization policies
JEL: 
D12
D84
E21
E31
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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