How Do Households Respond to Expected Inflation? An Investigation of Transmission Mechanisms

Date: Friday, Jan. 17
Time: 3:30–5 pm
Location: Arts Building Room 217, 9 Campus Dr., Saskatoon

Free and open to the public

About this event

Guest speaker: Janet Jiang, research director, Banking and Payments Department, Bank of Canada

We disentangle the channels through which inflation expectations affect household spending. We conduct a survey featuring hypothetical scenarios that generate a controlled increase in inflation expectations. For 74% of households, current spending is unresponsive, typically due to fixed budget plans or irrelevance of inflation expectations. About 20% of households reduce spending, often citing wealth effects, nominal income rigidity, and inflation hedging. Only 6% increase spending, mostly due to intertemporal substitution or stockpiling. Respondents who expect other economic variables to deteriorate are more likely to reduce spending. Our findings suggest manipulating inflation expectations to boost consumer spending may not be an effective policy tool.

Janet Jiang is the Research Director of the Research Team in the Banking and Payments Department. Janet obtained her PhD in Economics from Simon Fraser University in 2007. She builds theoretical models and runs surveys and controlled laboratory experiments to study inflation, asset trading, bank runs, currency competition, payment competition and central bank digital currencies. Her work has been published in Journal of Political Economy, Journal of Monetary Economics, Journal of Economic Theory, Review of Economic Dynamics, Canadian Journal of Economics, European Economic Review, Journal of Behavioral and Experimental Finance, Journal of Economic Behavior & Organization, and Journal of Economic Dynamics and Control.

Info: economics.dept@usask.ca