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

Research output: Contribution to journal › Article › Research › peer review

Authors

  • Lena Dräger
  • Hong Giang Nghiem

Research Organisations

External Research Organisations

  • Goethe University Frankfurt
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Details

Original languageEnglish
Pages (from-to)580-596
Number of pages17
JournalReview of Economics and Statistics
Volume103
Issue number3
Publication statusPublished - 12 Jul 2021

Abstract

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.

ASJC Scopus subject areas

Cite this

Are consumers’ spending decisions in line with a euler equation? / Dräger, Lena; Nghiem, Hong Giang.
In: Review of Economics and Statistics, Vol. 103, No. 3, 12.07.2021, p. 580-596.

Research output: Contribution to journal › Article › Research › peer review

Dräger L, Nghiem HG. Are consumers’ spending decisions in line with a euler equation? Review of Economics and Statistics. 2021 Jul 12;103(3):580-596. doi: 10.1162/rest_a_00909
Dräger, Lena ; Nghiem, Hong Giang. / Are consumers’ spending decisions in line with a euler equation?. In: Review of Economics and Statistics. 2021 ; Vol. 103, No. 3. pp. 580-596.
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abstract = "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.",
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