Fiscal Policy and Households' Inflation Expectations: Evidence from a Randomized Control Trial

Arbeitspapier

Rising government debt levels around the world are raising the specter that authorities might seek to inflate away the debt. In theoretical settings where fiscal policy “dominates” monetary policy, higher debt without offsetting changes in primary surpluses should lead households to anticipate this higher inflation. Are household inflation expectations sensitive to fiscal considerations in practice? We field a large randomized control trial on U.S. households to address this question by providing randomly chosen subsets of households with information treatments about the fiscal outlook and then observing how they revise their expectations about future inflation as well as taxes and government spending. We find that information about the current debt or deficit levels has little impact on inflation expectations but that news about future debt leads them to anticipate higher inflation, both in the short run and long run. News about rising debt also induces households to anticipate rising spending and a higher rate of interest for government debt.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8905

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Survey Methods; Sampling Methods ; Expectations; Speculations
• Subject: expectations management ; inflation expectations ; surveys

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Coibion, Olivier ; Gorodnichenko, Yuriy ; Weber, Michael ; Weber, Michael
• Event: Veröffentlichung
• (who): Center for Economic Studies and Ifo Institute (CESifo)
• (where): Munich
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/235275
• Last update: 10.03.2025, 11:44 AM CET