How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial

61 Pages Posted: 27 Jul 2019

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Maarten van Rooij

De Nederlandsche Bank; Netspar

Multiple version iconThere are 4 versions of this paper

Date Written: July 18, 2019

Abstract

We implement a survey of Dutch households in which random subsets of respondents receive information about inflation. The resulting exogenously generated variation in inflation expectations is used to assess how expectations affect subsequent monthly consumption decisions relative to those in a control group. The causal effects of elevated inflation expectations on non-durable spending are imprecisely estimated but there is a sharp negative effect on durable spending. We provide evidence that this is likely driven by the fact that Dutch households seem to become more pessimistic about their real income as well as aggregate spending when they increase their inflation expectations. There is little evidence to support the idea that the degree to which respondents change their beliefs or their spending in response to information treatments depends on their level of cognitive or financial constraints.

Keywords: survey data, inflation expectations, households, durable and non-durable consumption, randomized control trial

JEL Classification: E31, C83, D84

Suggested Citation

Coibion, Olivier and Georgarakos, Dimitris and Gorodnichenko, Yuriy and van Rooij, Maarten, How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial (July 18, 2019). Available at SSRN: https://ssrn.com/abstract=3426489 or http://dx.doi.org/10.2139/ssrn.3426489

Olivier Coibion (Contact Author)

University of Texas at Austin ( email )

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Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

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Center for Financial Studies (CFS) ( email )

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Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

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Maarten van Rooij

De Nederlandsche Bank ( email )

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