Working Paper: CEPR ID: DP18010
Authors: Francesco Grigoli; Damiano Sandri
Abstract: We use randomized controlled trials in the US, UK, and Brazil to examine the causal effect of public debt on household inflation expectations. We find that people underestimate public debt levels and increase inflation expectations when informed about the correct levels. The extent of the revisions is proportional to the size of the information surprise. Confidence in the central bank considerably reduces the sensitivity of inflation expectations to public debt. We also show that people associate high public debt with stagflationary effects and that the sensitivity of inflation expectations to public debt is considerably higher for women and low-income individuals.
Keywords: public debt; inflation expectations; monetary finance; fiscal dominance
JEL Codes: E31; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public debt (H63) | inflation expectations (E31) |
| information treatment (D83) | inflation expectations (E31) |
| confidence in central bank (E58) | inflation expectations (E31) |
| public debt (H63) | inflation expectations (women) (E31) |
| public debt (H63) | inflation expectations (low-income individuals) (E31) |