Uncertainty, Economic Expectations, and Financial Decisions

Purpose and goal

To assess the impact of economic shocks like the war or Covid and formulate effective policies, it is crucial to understand i) how households form expectations about economic foundations, and ii) how these expectations translate into financial choices. We exploit high-frequency data on consumption, savings, and investment decisions for a sample of households, paired with information experiments to exogenously shift consumer expectations. Together this will enable us to trace how a household’s actual consumption, borrowing, and investment respond to changes in expectations.

Expected effects and result

We aim to produce precise estimates of the average marginal propensity to consume out of different policy interventions, like change in inflation, GDP, and unemployment growth and its distribution across households with different characteristics.

Planned approach and implementation

The survey will proceed in the following steps. 1. Stage (prior expectations): Respondents will be asked about demographics, economic situation, expectations, their own future economic situation, and macroeconomic variables. 2. Stage (treatment): random subsets of respondents get information about forecasts of inflation, GDP growth, and/or unemployment. 3 treatments: pessimistic, median, and optimistic forecasts and Control group. 3. Stage (posterior expectations): we will re-elicit the expectations. 4. Stage we will combine survey responses with administrative data.