Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence. Review and Extension of Results


Lora Pavlova

Abstract:

In an environment where the zero lower bound on nominal interest rates hasbecome binding, central bank communication and influencing household expectationshas become even more important for stabilization policy. This paper examines therelationship between household inflation expectations and their buying attitudes withrespect to durable goods. The first part of this paper focuses on the results by Bachmannet al(2015) and some related literature which uses microdata. The main observationis that there seems to be a negative, if at all, relationship between expected inflationand current expenditure on durables. The second part builds upon the work of Bachmann etal(2015) and replicates their baseline specification with an extended sample, to examine whether households display some changes in behavior after experiencinga prolonged period of practically fixed interest rates.

Keywords:

consumer expectations, inflation, readiness to spend, zero lower bound

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