How does consumption respond to news about inflation? Field evidence from a randomized control trial

Coibion, O., Georgarakos, D., Gorodnichenko, Y. and van Rooij, M. (2023) How does consumption respond to news about inflation? Field evidence from a randomized control trial. American Economic Journal: Macroeconomics, 15(3), pp. 109-152. (doi: 10.1257/mac.20200445)

Abstract

We implement a survey of Dutch households in which random subsets of respondents receive information about inflation. The resulting exogenously generated variation in inflation expectations is used to assess how expectations affect consumption decisions. The causal effects of reduced inflation expectations on nondurable spending are imprecisely estimated, but there is a sharp positive effect on durable spending. This is likely driven by the fact that Dutch households seem to become more optimistic about their real income and aggregate spending when they decrease their inflation expectations. We find little role for cognitive or financial constraints in explaining spending responses.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Georgarakos, Professor Dimitris
• Authors: Coibion, O., Georgarakos, D., Gorodnichenko, Y., and van Rooij, M.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: American Economic Journal: Macroeconomics
• Publisher: American Economic Association
• ISSN: 1945-7707
• ISSN (Online): 1945-7715
• Copyright Holders: Copyright © 2023 American Economic Association
• First Published: First published in American Economic Journal: Macroeconomics 15(3): 109-152
• Publisher Policy: Reproduced in accordance with the publisher copyright policy