Macroeconomic Expectations and Credit Card Spending
How do macroeconomic expectations affect consumer decisions? This paper reports results from a natural field experiment with 2,872 credit card customers from a large commercial bank to answer this question. Participants of the experiment first comp...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/856051611603146325/Macroeconomic-Expectations-and-Credit-Card-Spending http://hdl.handle.net/10986/35071 |
| Summary: | How do macroeconomic expectations affect
consumer decisions? This paper reports results from a
natural field experiment with 2,872 credit card customers
from a large commercial bank to answer this question.
Participants of the experiment first completed a survey
that measured consumer expectations about future inflation
and the nominal exchange rate. This survey was combined with
an information-provision experiment that generated exogenous
variation in respondents’ macroeconomic expectations. The
survey and experimental data were then merged with detailed
administrative data on participants’ credit card
transactions and balances. The experiment was designed to
test three standard predictions from models of intertemporal
consumption choice: inflation expectations should affect
spending on durables; exchange rate expectations should
affect spending on tradables; and, holding constant the
nominal interest rate, inflation expectations should affect
borrowing. The analysis finds that the information provided
to participants strongly affects subjective expectations.
However, no significant effects are found on actual consumer
behavior (as measured in administrative data) or
self-reported consumption plans (as measured in survey
data). The preferred interpretation is that consumers are
not sophisticated enough to factor inflation and exchange
rate expectations into their consumption decisions. The
absence of a link between consumer expectations and behavior
has potentially important implications for macroeconomic
policies such as forward guidance. |
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