The Effect of Unconventional Fiscal Policy on Consumption Expenditure

D’Acunto, Francesco; Hoang, Daniel; Weber, Michael

doi:10.3386/w22563

Cited by 54 publications

(35 citation statements)

References 51 publications

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“…Prior evidence suggests that expectations are indeed related to actual, as well as intended, future investment decisions. See Gennaioli, Ma, and Shleifer () for the effect of expectations on actual investment and D'Acunto, Hoang, and Weber () for intended purchases.…”

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confidence: 99%

Personal Experiences and Expectations about Aggregate Outcomes

Kuchler

Zafar²

2019

The Journal of Finance

309

143

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Using novel survey data, we document that individuals extrapolate from recent personal experiences when forming expectations about aggregate economic outcomes. Recent locally experienced house price movements affect expectations about future U.S. house price changes and higher experienced house price volatility causes respondents to report a wider distribution over expected U.S. house price movements. When we exploit within-individual variation in employment status, we find that individuals who personally experience unemployment become more pessimistic about future nationwide unemployment. The extent of extrapolation is unrelated to how informative personal experiences are, is inconsistent with risk adjustment, and is more pronounced for less sophisticated individuals.

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confidence: 99%

Personal Experiences and Expectations about Aggregate Outcomes

Kuchler

Zafar²

2019

The Journal of Finance

309

143

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“…These expectations channels can be important not just for monetary policy (e.g. forward guidance) but also for fiscal policies, as exemplified in recent discussion of anticipated VAT changes (D'Acunto et al (2016)).…”

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confidence: 99%

“…One notable exception to this in the literature on consumption and inflation expectations isD'Acunto et al (2016). They exploit the rise in expected inflation associated with the anticipation of VAT changes in Germany as an exogenous source of variation in inflation expectations relative to households in neighboring countries that did not have this policy change.…”

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confidence: 99%

Inflation Expectations and Firm Decisions: New Causal Evidence*

Coibion

Gorodnichenko

Ropele

2019

The Quarterly Journal of Economics

280

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We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms’ economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation whereas other firms are not. This information treatment generates exogenous variation in inflation expectations. We find that higher inflation expectations on the part of firms leads them to raise their prices, increase demand for credit, and reduce their employment and capital. However, when policy rates are constrained by the effective lower bound, demand effects are stronger, leading firms to raise their prices more and no longer reduce their employment.

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“…2 Earlier research found conflicting results on whether households' choice reacts to their inflation expectations. For instance, see Bachmann et al (2015), Crump et al (2018), andWeber (2018a). 3 In a companion paper (D'Acunto, Hoang, Paloviita, and Weber (2019)), we show the quality and consistency of economic expectations and economic choices that high-cognitive-ability men form is substantially higher than those of low-cognitive-ability men.…”

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confidence: 56%

Human Frictions in the Transmission of Economic Policy

et al. 2019

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Intertemporal substitution is at the heart of modern macroeconomics and finance as well as economic policymaking, but a large fraction of a representative population of men -those below the top of the distribution by cognitive abilities (IQ) -do not change their consumption propensities with their inflation expectations. Low-IQ men are also less than half as sensitive to interest-rate changes when making borrowing decisions. Our microdata include unique administrative information on cognitive abilities, as well as economic expectations, consumption and borrowing plans, and total household debt from Finland. Heterogeneity in observables such as education, income, other expectations, and financial constraints do not drive these patterns. Costly information acquisition and the ability to form accurate forecasts are channels that cannot fully explain these results. Limited cognitive abilities could be human frictions in the transmission and effectiveness of fiscal and monetary policies that operate through household consumption and borrowing decisions.JEL classification: D12, D84, D91, E21, E31, E32, E52, E65

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The Effect of Unconventional Fiscal Policy on Consumption Expenditure

Cited by 54 publications

References 51 publications

Personal Experiences and Expectations about Aggregate Outcomes

Personal Experiences and Expectations about Aggregate Outcomes

Inflation Expectations and Firm Decisions: New Causal Evidence*

Human Frictions in the Transmission of Economic Policy

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