Households' Response to the Wealth Effects of Inflation

79 Pages Posted: 11 Sep 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

Multiple version iconThere are 2 versions of this paper

Date Written: September 2023

Abstract

We study the redistributive effects of 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 update upwards their beliefs about nominal debt and their own real net wealth. These changes in beliefs 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.

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Suggested Citation

Schnorpfeil, Philip and Weber, Michael and Hackethal, Andreas, Households' Response to the Wealth Effects of Inflation (September 2023). NBER Working Paper No. w31672, Available at SSRN: https://ssrn.com/abstract=4567678

Philip Schnorpfeil (Contact Author)

Goethe University Frankfurt ( email )

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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)

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Cambridge, MA 02138
United States

Andreas Hackethal

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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