Inflation Expectations and Household Consumption Behavior

Project Start:07/2017
Researchers:Satyajit Dutt, Nathanael Vellekoop, Mirko Wiederholt
Category: Household Finance
Funded by:LOEWE

When central banks set the nominal interest rate to zero, and reach the zero lower bound, they effectively lose a policy instrument to stimulate the economy in times of recessions. Some economists (e.g. Rogoff, Kocherlakota and Romer) have advocated that central banks could target inflation expectations of households instead. The idea would be that through intertemporal substitution of consumption, households with higher inflation expectations would shift expenditures from the future, which in turn would stimulate household spending now. One problem with this suggestion is that there is very little evidence on how consumption and savings behavior of households actually respond to inflation expectations.


In a predecessor to this project (Project 21323) we have explored (1) how households form inflation expectations, and (2) linking inflation expectations to administrative data on household assets, how inflation expectations affect household net worth. The results of this project are written in a working paper “Inflation Expectations and Choices of Households, 2018, Vellekoop and Wiederholt”, soon to appear in the SAFE working paper series (expected December 2018).


We want to extend this project and focus our attention to inflation expectations and the decision to buy a house. The decision to buy a house is an important one for many households, especially for owner-occupants. We have access to a large survey with inflation expectations as well as intentions to buy a house. We can link these surveys to the housing registry to create a longer time dimension and observe outcomes, which are otherwise not observable in surveys alone [the survey with household inflation expectations is a different one than the DNB Household Survey we used in project 21323].


Our objective is twofold. Our first goal is to describe how households house buying intentions line up with their actions as observed in the administrative date. Many consumer sentiment surveys ask for attitudes to buy durables or houses. As far as we know, no study has actually measured the empirical content of buying intentions (and several studies use buying attitudes as an outcome variable to proxy spending). Our second goal is to measure how inflation expectations affect house buying decisions, both the extensive margin (buy or not), as well as the speed, as measured by the length of time since the survey.

Related Working Papers

No.Author/sTitleYearProgram AreaKeywords
249Yuri Pettinicchi, Nathanael VellekoopJob Loss Expectations, Durable Consumption and Household Finances: Evidence from Linked Survey Data2019 Household Finance Subjective expectations; Durable consumption; Household saving
250Nathanael Vellekoop, Mirko WiederholtInflation Expectations and Choices of Households2019 Household Finance