Research / Sep 08, 2023

Households’ Response to the Wealth Effects of Inflation

Philip Schnorpfeil, Michael Weber, Andreas Hackethal

We study the redistributive effects of inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households update upwards their beliefs about nominal debt and their own real net wealth. These changes in beliefs causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.

More Research From These Scholars

BFI Working Paper Jan 1, 2017

Flexible Prices and Leverage

Francesco D'Acunto, Ryan Liu, Carolin Pflueger
Topics:  Fiscal Studies
BFI Working Paper Aug 1, 2016

Cash Flow Duration and the Term Structure of Equity Returns

Michael Weber
Topics:  Fiscal Studies
Jul 24, 2023

Tell Me Something I Don’t Already Know: Learning in Low and High-Inflation Settings

Michael Weber, Serafin Frache, Dimitris Georgarakos, Bernardo Candia, Brent Meyer, Olivier Coibion, Tiziano Ropele, Saten Kumar, Geoff Kenny, Rodrigo Lluberas, Yuriy Gorodnichenko, Jorge Ponce
Topics:  Monetary Policy