Inflation Expectations and Consumer Spending at the Zero Bound: Micro Evidence

22 Pages Posted: 7 Feb 2015

Date Written: April 2015

Abstract

Standard theoretical models predict that higher inflation expectations generate greater current consumer spending at the zero lower bound of interest rates. However, recent empirical studies using U.S. micro data find negative results for this relationship. We use micro data for Japan, which has experienced low interest rates for a prolonged period, to estimate ordered probit models with a variety of controls. We find robust evidence supporting the prediction of standard models: survey respondents with higher expected inflation tend to indicate that their household has increased real spending compared with 1 year ago but will decrease it in the future. This relationship appears to be stronger for asset holders and older people.

JEL Classification: E20, E21, E30, E31, E50, E52

Suggested Citation

Ichiue, Hibiki and Nishiguchi, Shusaku, Inflation Expectations and Consumer Spending at the Zero Bound: Micro Evidence (April 2015). Economic Inquiry, Vol. 53, Issue 2, pp. 1086-1107, 2015, Available at SSRN: https://ssrn.com/abstract=2561676 or http://dx.doi.org/10.1111/ecin.12176

Hibiki Ichiue (Contact Author)

Bank of Japan ( email )

CPO Box 203
Tokyo, 100-91
Japan

Shusaku Nishiguchi

Bank of Japan ( email )

CPO Box 203
Tokyo, 100-91
Japan

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