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 Apr 9, 2020

Monetary Momentum

Andreas Neuhierl, Michael Weber
Topics:  Monetary Policy, Financial Markets
BFI Working Paper Mar 17, 2022

What Do the Data Tell Us About Inflation Expectations?

Francesco D'Acunto, Ulrike Malmendier, Michael Weber
Topics:  Monetary Policy
BFI Working Paper Nov 1, 2016

Monetary Policy and the Stock Market: Time-Series Evidence

Michael Weber, Andreas Neuhierl
Topics:  Financial Markets, Technology & Innovation, Fiscal Studies