Households' Response to the Wealth Effects of Inflation

84 Pages Posted: 22 Nov 2022 Last revised: 23 Dec 2023

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

Multiple version iconThere are 2 versions of this paper

Date Written: November 27, 2023

Abstract

We study the redistributive effects of surprise inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households view nominal debt more positively and increase estimates of their own real net wealth. These changes causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.

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

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 (November 27, 2023). 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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