Households' Response to the Wealth Effects of Inflation

80 Pages Posted: 22 Nov 2022 Last revised: 4 Dec 2024

See all articles by Philip Schnorpfeil

Philip Schnorpfeil

Goethe University Frankfurt

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

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Date Written: April 15, 2025

Abstract

We study households' response to the redistributive effects of inflation combining bank data with an information experiment during historic inflation. Households are generally well-informed about inflation and concerned about its wealth impact. However, while knowledge about inflation eroding nominal assets is widespread, most households are unaware of nominal-debt erosion. When informed about the latter, households view nominal debt more positively and increase estimates of their real net wealth. These changes causally affect actual consumption and hypothetical debt decisions. Our findings suggest real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.

Keywords: Information Treatment, Consumption, Monetary Policy, Inflation Beliefs

JEL Classification: D12, D14, D83, D84, E21, E31, E52

Suggested Citation

Schnorpfeil, Philip and Weber, Michael and Hackethal, Andreas, Households' Response to the Wealth Effects of Inflation (April 15, 2025). SAFE Working Paper No. 400, Available at SSRN: https://ssrn.com/abstract=4277575 or http://dx.doi.org/10.2139/ssrn.4277575

Philip Schnorpfeil (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Michael Weber

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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