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Public Debt and Household Inflation Expectations
Author:
Mr. Francesco Grigoli
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and
Mr. Damiano Sandri
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Series:
IMF Working Papers
Volume/Issue:
Volume 2023: Issue 066
Language:
English
Publication Date:
17 Mar 2023
DOI:
https://doi.org/10.5089/9798400235214.001
ISBN:
9798400235214
ISSN:
1018-5941
Pages:
37
Keywords:
Capital controls; capital outflows; financial crises; inflation expectation; household inflation expectation; increase inflation expectation; sensitivity of inflation expectation; public debt level; Inflation; Inflation targeting; Quasi-fiscal operations; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We use randomized controlled trials in the US, UK, and Brazil to examine the causal effect of public debt on household inflation expectations. We find that people underestimate public debt levels and increase inflation expectations when informed about the correct levels. The extent of the revisions is proportional to the size of the information surprise. Confidence in the central bank considerably reduces the sensitivity of inflation expectations to public debt. We also show that people associate high public debt with stagflationary effects and that the sensitivity of inflation expectations to public debt is considerably higher for women and low-income individuals.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2023: Issue 066