Working Paper: CEPR ID: DP16279
Authors: Martin Kanz; Ricardo Perez-Truglia; Mikhail Galashin
Abstract: How do macroeconomic expectations affect consumer decisions? We examine this question using an experiment with 2,872 credit card customers at a large commercial bank. We provide participants with expert forecasts of inflation and the nominal exchange rate and measure the consumption response to this information using detailed data on individual credit card transactions. We find that forecasts strongly affect inflation and exchange rate expectations, but do not change spending or self-reported consumption plans as predicted by standard models of intertemporal choice. Results from a supplementary survey experiment suggest that consumers are sophisticated enough to anticipate nominal rigidities that lower expected real income and reduce spending on durables for precautionary reasons, counteracting the effects predicted by standard models of intertemporal optimization. The absence of a link between consumer expectations and behavior has potentially important implications for macroeconomic policies such as forward guidance.
Keywords: exchange rate; inflation expectations; field experiment; consumption
JEL Codes: C81; C93; D83; E31; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Alters participants' expectations of inflation and exchange rates (F31) | Changes in actual consumption behavior (D12) |
| Higher inflation expectations (E31) | Increase spending on durables (E20) |
| Higher expected exchange rate depreciation (F31) | Increase spending on tradable durables (E20) |
| Higher inflation expectations (E31) | Increase credit card borrowing (G51) |
| Changes in expectations (D84) | Significant changes in actual consumption behavior (D12) |
| Providing forecasts of inflation and exchange rates (F37) | Alters participants' expectations of inflation and exchange rates (F31) |