TY - JOUR

T1 - Are consumers’ spending decisions in line with a euler equation?

AU - Dräger, Lena

AU - Nghiem, Hong Giang

N1 - Funding Information: We thank Ulrich Fritsche for the stimulating collaboration within the University of Hamburg survey project and the questionnaire design and Olaf Bock, Gianna Eick, and the team of the University of Hamburg telephone lab for conducting the survey and providing valuable assistance with the preparation of the data set. We also thank Olivier Coibion and three anonymous referees for insightful comments and suggestions. We further thank Olivier Armantier, Rudi Bachmann, Bernd Bartels, Horst Entorf, Baptiste Massenot, Geoff Kenny, Chris Roth, Eric Sims, Stefan Trautmann, and Michael Weber, as well as participants at various conferences and seminars, for valuable comments. Feedback on the University of Hamburg questionnaire from Tobias Schmidt at Deutsche Bundesbank and from the GESIS Leibniz-Institute for Social Sciences, as well as funding from the regional branch for Hamburg, Schleswig-Holstein and Mecklenburg-Vorpommern of the Bundesbank, is gratefully acknowledged. Sergej Bechtoldt provided valuable research assistance. All remaining errors are our own.

PY - 2021/7/12

Y1 - 2021/7/12

N2 - Evaluating a new survey of German consumers, we test whether individual consumption spending decisions are formed according to a Euler equation model. We find that consumers are more likely to increase current spending if they plan to increase spending in the future and if they expect higher inflation. In the subsample of financially literate households, we find an additional negative effect of nominal interest rate expectations. The effects of macroeconomic expectations become stronger if consumers observed news on monetary policy or financial markets. These news effects are particularly pronounced for consumers who save and those with low inflation forecast accuracy.

AB - Evaluating a new survey of German consumers, we test whether individual consumption spending decisions are formed according to a Euler equation model. We find that consumers are more likely to increase current spending if they plan to increase spending in the future and if they expect higher inflation. In the subsample of financially literate households, we find an additional negative effect of nominal interest rate expectations. The effects of macroeconomic expectations become stronger if consumers observed news on monetary policy or financial markets. These news effects are particularly pronounced for consumers who save and those with low inflation forecast accuracy.

UR - http://www.scopus.com/inward/record.url?scp=85110527576&partnerID=8YFLogxK

U2 - 10.1162/rest_a_00909

DO - 10.1162/rest_a_00909

M3 - Article

AN - SCOPUS:85110527576

VL - 103

SP - 580

EP - 596

JO - Review of Economics and Statistics

JF - Review of Economics and Statistics

SN - 0034-6535

IS - 3

ER -