How does household expenditure respond to inflation expectations? Evidence from randomized information treatments in Japan

ABSTRACT

Exploiting an exogenous variation in inflation expectations driven by randomized information treatments, I examined the extent to which the inflation expectations influence the current household expenditure in Japan. The findings are as follows. First, those who received the information on the latest inflation rate (‒0.6%) revised their inflation expectations downward. Second, a rise in inflation expectations has a positive impact on the current household expenditure. Third, the estimated intertemporal elasticity of substitution is large (about unity), suggesting that the intertemporal substitution played an important role in the current analysis.

KEYWORDS:

• Inflation expectations
• household expenditure
• randomized control trial
• monetary policy

JEL CLASSIFICATION:

• D84
• E21
• E43
• E52

Acknoledgements

I would like to thank two anonymous referees and Masahiro Hori, Keiko Murata, Koichiro Iwamoto, Fumihiko Suga, Junya Hamaaki, Taiyo Fukai, and Kazuhito Higa for their helpful comments. This research was supported by the Ehime University, the Nomura Foundation, and JSPS KAKENHI Grant Numbers 20K13512. Special thanks go to INTAGE Inc. for providing us with the data I employed in the current analysis. The experiment is registered in the American Economic Association RCT Registry (AEARCTR-0008078) and approved by the research ethics committee at Ehime University on 4 February 2021.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ See Haaland, Roth, and Wohlfart (2022) for a comprehensive survey on information provision experiments.

² As in Coibion et al. (2022a), (2022b)), we also added the treatment group dummies interacted with the prior beliefs about inflation expectations to check whether the revision of inflation expectations depends on the prior beliefs. We found that the estimates for all groups were not significantly different from zero.

³ The expected growth rate of real household total expenditure is calculated by subtracting the expected inflation rates from the expected growth rates of nominal household total expenditure.

Additional information

Funding

This work was supported by the JSPS [20K13512];Ehime University;Nomura Foundation;