ESRI Discussion Paper Series No.353 Inflation Expectations and Consumer Spending: Micro-data Evidence
Abstract
This study examines the relationship between inflation expectations and consumer spending.
Using a combination of original consumer survey data on inflation expectations and scanner data on the actual expenditure, we examine whether higher inflation expectations generate greater current spending. The linked data also allows us to directly estimate the value of the elasticity of the intertemporal substitution (EIS) based on a standard macroeconomic model. We find that higher inflation expectations generate greater current spending compared with one year later. We find the value of the EIS significantly positive and approximately 0.1. On the other hand, liquidity-constrained consumers seem to decrease current expenditure in response to higher inflation expectations. This evidence implies that the impact of higher inflation expectations on consumers' intertemporal allocation may vary depending on the type of consumer.
Structure of the whole text(PDF-Format 1 File)
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1 Introductionpage1
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2 Theoretical framework and identification strategypage4
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2.1. A standard model of consumption in the complete marketspage4
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2.2. Identification strategypage5
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3 Datapage6
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3.1. Survey of inflation expectationspage6
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3.2. Data about the consumption expenditurepage8
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4 Estimation resultspage9
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4.1. Testing the theoretical prediction and estimating the structural parameter of the EISpage9
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4.2. Robustness checkpage10
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5 How do consumers with liquidity constraints respond to a change in their inflation expectations?page11
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6 Conclusionpage12
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