Inflation expectations, economic policy ambiguity and micro-level consumer behavior

Abstract

Purpose This paper aims to augment existing literature by examining how specific macroeconomic conditions (economic policy uncertainty and inflation expectations) influence micro-level (instead of macro-level) behavioral dynamics exhibited by the average consumer. Design/methodology/approach This study conducted empirical analysis using structural vector autoregressive estimation technique. Findings The average consumer tends to exhibit significantly varied micro-level expenditure behavioral patterns not readily observed at the macro- or aggregate-level expenditures. For instance, this study finds that in the short run, inflation expectations tend to have a significant positive impact on both non-durable goods and service expenditures; the same condition, however, tends to have a negative impact on durable goods. Additionally, this study also finds that economic policy uncertainty, unlike inflation expectations, tends to constrain consumption expenditures at all micro levels with very significant variations in decline in expenditures made. Originality/value Unlike legion of empirical work based on macro-level analysis, this study adopts a micro-level analysis and also engages two macroeconomic conditions (inflation expectations and economic policy uncertainty) not already examined in existing studies.