Working Paper: NBER ID: w28281
Authors: Misha Galashin; Martin Kanz; Ricardo Perez-Truglia
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 administrative 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 their 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: macroeconomic expectations; consumer behavior; credit card spending; inflation; exchange rate
JEL Codes: C81; C93; D83; D84; E03; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Expert forecasts of inflation (E31) | Consumer expectations of inflation (E31) |
| Expert forecasts of nominal exchange rate (F31) | Consumer expectations of nominal exchange rate (F31) |
| Consumer expectations of inflation (E31) | Spending on durables (E20) |
| Consumer expectations of nominal exchange rate depreciation (F31) | Spending on tradable durables (E20) |
| Consumer expectations of inflation (E31) | Credit card borrowing (G51) |
| Anticipated increases in inflation (E31) | Spending (H61) |
| Anticipated increases in exchange rate depreciation (F31) | Spending (H61) |
| Nominal rigidities (D59) | Adjusted spending plans (H61) |
| Adjusted spending plans (H61) | Reduction in spending on durable goods (D12) |