Macroeconomics and Consumer Surveys
Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM
- Chair: Wilbert van der Klaauw, Federal Reserve Bank of New York
Expectations with Endogenous Information Acquisition: An Experimental Investigation
AbstractInformation frictions play an important role in many theories of expectation formation and macroeconomic fluctuations. We use a survey experiment to generate direct evidence on how people acquire and process information, in the context of national home price expectations. Participants can buy different pieces of information that could be relevant for the formation of their expectations about the future median national home price. We use an incentive-compatible mechanism to elicit their maximum willingness to pay. We also introduce exogenous variation in the value of information by randomly assigning individuals to rewards for the ex-post accuracy of their expectations. Consistent with rational inattention, individuals are willing to pay more for information when they stand to gain more from it. However, underscoring the importance of limits on information processing capacity, individuals disagree on which signal they prefer to buy. Individuals with lower education and numeracy are less likely to demand information that has ex-ante higher predictive power. As a result of the disagreement, lowering the information acquisition cost does not decrease the cross-sectional dispersion of expectations. We show that a model with rational inattention and heterogeneous prior beliefs about information sources can match almost all of our empirical results. Our findings also have implications for the design of information interventions.
Inflation Expectations, Consumption and the Lower Bound: Micro Evidence from a Large Euro Area Survey
AbstractThis paper exploits a very large multi-country survey of consumers to investigate empirically the relationship between inflation expectations and consumer spending. We document that for the Euro Area and almost all of its constituent countries this relationship is generally positive: a higher expected change in inflation is associated with an increase in the probability that a given consumer will make major purchases. Moreover, in line with the predictions of macroeconomic theory, the impact is stronger when the lower bound on nominal interest rates is binding. Also, using the estimated spending probabilities from our micro-level analysis, we indirectly estimate the impact of a gradual increase in inflation expectations on aggregate private consumption. We find the effects to be economically relevant, especially when the lower bound is binding.
Monetary Policy Transmission to Consumer Financial Stress and Durable Consumption
AbstractUsing panel data from eighteen annual-waves of the UK BHPS, we examine the effects of monetary policy on households’ self-reported financial stress and durable spending. For identification, we exploit random variation of households’ interview dates with respect to the timing of interest rate changes. After accounting for household and month-of-interview-year fixed effects, we uncover significant heterogeneities in the way that monetary policy affects household groups that differ in housing and saving status. In particular, an increase in interest rates induces financial stress among mortgagors and renters, while it lessens financial stress of savers. We find symmetric effects on durable spending, mainly driven by hand-to-mouth mortgagors and younger renters who are likely home buyers.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- D8 - Information, Knowledge, and Uncertainty