useful suggestions. We are particularly grateful to Olivier Coibion for a helpful discussion and to Mike Pries for several comments. We also thank Annika Klatt for her excellent research assistance. The usual disclaimer applies. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
There have been suggestions for monetary policy to engineer higher inflation expectations to stimulate spending. We examine the relationship between expected inflation and spending attitudes using the microdata from the Michigan Survey of Consumers. The impact of higher inflation expectations on the reported readiness to spend on durables is generally small, outside the zero lower bound, often statistically insignificant, and inside of it typically significantly negative. In our baseline specification, a one percentage point increase in expected inflation during the recent zero lower bound period reduces households' probability of having a positive attitude towards spending by about 0.5 percentage points. (JEL D12, D84, E21, E31, E52) T here have recently been suggestions by economists and policymakers alike to engineer higher private sector inflation expectations with the goal of stimulating current spending. 1 Increased inflation expectations might lower real interest rates and thus boost interest-sensitive components of aggregate demand, particularly in an environment in which nominal interest rates are constrained from below.
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