Household Inflation Expectations and Consumer Spending: Evidence from Panel Data Household Inflation Expectations and Consumer Spending: Evidence from Panel Data

By Mary A. Burke and Ali K. Ozdagli

The earlier literature presents mixed findings on the relationship between household inflation expectations and consumption; those studies typically use survey data that capture “readiness to spend” qualitatively. In contrast, this paper, employing panel data assembled through two separate modules of the RAND American Life Panel survey, studies actual spending on durable goods and, separately, on nondurable goods and services.

In addition to enabling the authors to measure actual spending levels and to test the response of spending on nondurable goods and services separately from the response of durable-goods spending, the panel data allow them to control for unobserved heterogeneity across households that might affect inflation expectations and spending simultaneously. The data also allow them to assess heterogeneity in behavior along new dimensions, including whether a household has a mortgage, to reveal additional information about the mechanisms by which inflation expectations might influence spending.

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