Working Paper: CEPR ID: DP18440
Authors: Philip Schnorpfeil; Michael Weber; Andreas Hackethal
Abstract: We study the redistributive effects of inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households update upwards their beliefs about nominal debt and their own real net wealth. These changes in beliefs causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.
Keywords: Consumption; Inflation; Beliefs; Information Treatment; Monetary Policy
JEL Codes: D12; D14; D83; D84; E21; E31; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Households' awareness of inflation-induced nominal asset erosion is high (D12) | Limited awareness leads to muted responses to the redistributive effects of inflation (H31) |
| Information about nominal debt erosion (H63) | Households update beliefs about their real net wealth upwards (G59) |
| Households update beliefs about their real net wealth upwards (G59) | Consumption decisions and hypothetical debt choices (D12) |
| Learning about debt erosion (G51) | Reduces debt aversion (G51) |
| Learning about debt erosion (G51) | Higher preference for fixed-rate mortgages over adjustable-rate options (G21) |
| Real wealth mediates the sensitivity of consumption to inflation (E21) | Awareness of wealth effects in economic decision-making (G41) |