Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306713 
Year of Publication: 
2024
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2024-44
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We disentangle the channels through which inflation expectations affect household spending. We conduct a survey featuring hypothetical scenarios that generate a controlled increase in inflation expectations. For 74% of households, current spending is unresponsive, typically due to fixed budget plans or irrelevance of inflation expectations. About 20% of households reduce spending, often citing wealth effects, nominal income rigidity, and inflation hedging. Only 6% increase spending, mostly due to intertemporal substitution or stockpiling. Respondents who expect other economic variables to deteriorate are more likely to reduce spending. Our findings suggest manipulating inflation expectations to boost consumer spending may not be an effective policy tool.
Subjects: 
Central bank research
Inflation and prices
Inflation targets
Monetary policy
Monetary policy transmission
JEL: 
D15
D84
E2
E52
E7
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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