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Vol. 72, No. 3, pp. 268-295 (2021)

“Household Inflation Expectation and Consumption --Evidence from Japan--”
Ryo Jinnai (Institute of Economic Research, Hitotsubashi University), Tomoaki Mikami (Bank of Japan), Tatsushi Okuda (Bank of Japan), Jouchi Nakajima (Bank of Japan)

We study household inflation expectation and consumption decisions jointly, using the micro-level panel dataset based on household surveys in Japan when nominal interest rates stay at the effective lower bound. We find that a rise in household inflation expectation generally leads to a rise in current consumption relative to future. However, we find that this relation may not be robust in some situations. Specifically, changes in household inflation expectations along with the fluctuation in food and energy prices have a little impact on consumption, whereas changes in their inflation expectations due to other factors have a strong impact. Building a formal model and calibrate its parameters, we show that these results can be interpreted as the household's optimal behavior under imperfect information.