An experiment on consumption responses to future price and interest rates

Wolfgang Luhan, Michael W.m. Roos, Johann Scharler

    Research output: Chapter in Book/Report/Conference proceedingChapter (peer-reviewed)peer-review

    Abstract

    We design an experiment to investigate the influence of announced future variations in interest rates and prices on consumption decisions. In an experimental implementation of the discounted utility model, the subjects learn the entire paths of inflation and interest rates prior to deciding on a consumption path. We decompose the total change in consumption that results from changes in either interest rates or inflation rates into anticipation and impact effects. While impact effects are of similar orders of magnitude as in the model, future changes in inflation or interest rates exert substantially smaller effects on current consumption than predicted by the model.
    Original languageEnglish
    Title of host publicationExperiments in macroeconomics
    EditorsJohn Duffy
    PublisherEmerald Group Publishing Limited
    Pages139-166
    ISBN (Electronic)978-1-78441-194-7
    ISBN (Print)978-1-78441-195-4
    DOIs
    Publication statusPublished - Nov 2014

    Publication series

    NameResearch in Experimental Economics
    Volume17
    ISSN (Print)0193-2306

    Keywords

    • Consumption
    • saving
    • intertemporal utility maximization
    • macroeconomic experiment

    Fingerprint

    Dive into the research topics of 'An experiment on consumption responses to future price and interest rates'. Together they form a unique fingerprint.

    Cite this