ESRI Discussion Paper Series No.364 Inflation Expectations and Household Expenditure: Evidence from Pseudo-Panel Data in Japan

This paper examines to what extent a rise in inflation expectations stimulates current household expenditure in Japan. Using matched household datasets, we find the following. First, quarterly total expenditure increases by 11,930–14,779 yen or 1.0–1.4% in response to a one percentage point rise in the expected inflation rate. Second, the response is largest for durable expenditure, while non-storable non-durable expenditure shows no response. Third, the stimulative effect of a temporary rise in inflation expectations is largely offset by a decline in expenditure a few quarters after inflation expectations have returned to their previous level, implying the importance of intertemporal substitution channel in the transmission of unconventional policies.