Inflation expectations of households and the upgrading channel.

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Date: May 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 277 words

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Abstract :

Keywords Inflation expectations; Consumption upgrading; Product Replacement; Survey Experiment Highlights * Consumption upgrading impacts households' beliefs about inflation. * Exposure to better-quality products increases inflation expectations. * Product replacement and quality change can explain higher inflation expectations. Abstract Motivated by direct evidence that households tend to purchase higher quality goods over time (consumption upgrading), we use a survey experiment to study the relationship between consumption upgrading and households' beliefs about inflation. We find that providing price information on better-quality products will lead to higher inflation expectations. The effects on inflation expectations are smaller when price information on both higher- and lower-quality products is made available, suggesting that product replacement increases inflation expectations. Additional tests show that our results are not driven by mixing price with quality or numeracy. Our findings highlight the relationship between product replacement, product variety, and inflation expectations. Author Affiliation: (a) National University of Singapore, Singapore (b) Nanyang Technological University, Singapore (c) Singapore Management University, Singapore * Corresponding author. Article History: Received 24 September 2021; Revised 8 April 2022; Accepted 11 April 2022 (footnote)[white star] We would like to thank Yuriy Gorodnichenko (the editor), an anonymous referee, Michael Weber, Bernard Yeung, Andrew Rose, Gene Amromin, Tiffany Tsai, Jordan Roulleau-Pasdeloup, Jessica Pan, Ivan Png, and Songfa Zhong, as well as seminar participants at the 2020 World Congress of the Econometric Society and the 2020 Central Bank Research Association Annual Meeting for helpful comments. This project was approved by the Institutional Review Board, National University of Singapore. We acknowledge financial support from the Monetary Authority of Singapore and NUS Start-up Grant (R-315-000-126-133). Byline: Sumit Agarwal [ushakri@yahoo.com] (a), Yeow Hwee Chua [yeowhwee@gmail.com] (b), Changcheng Song [ccsong@smu.edu.sg] (c,*)

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Source Citation   

Gale Document Number: GALE|A703193418