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Effects of Inflation and Wage Expectations on Consumer Spending

: Evidence from Micro Data

June 21, 2016
Yuichiro Ito*1
Sohei Kaihatsu*2

Abstract

This paper employs a unique micro dataset in Japan to monitor inflation and wage expectations and investigate their effects on consumer spending. Based on our analysis, wage expectations increased moderately among wider range of employees after the introduction of Quantitative and Qualitative Monetary Easing (QQE). Real wage expectations also recovered recently, although it declined soon after the introduction of QQE, reflecting larger increases in inflation expectations compared with wage expectations. Increases in inflation expectations produced the positive effect on consumer spending on the whole since the positive effect of declines in real interest rates was larger than the negative effect of declines in real wage expectations. Wage expectations were generally influenced by wage perception and business performance outlook. This suggests that improvement in wage expectations needs to associate higher expectations about business performance outlook and realization of wage increases.

JEL Classification
D12, D84, D91, E21, E52

Keywords
inflation expectations, wage expectations, Carlson-Parkin method, survey data, Quantitative and Qualitative Monetary Easing

We would like to thank the staff of the Bank of Japan for their helpful comments. The data for this analysis, "The Questionnaire Survey on Work and Life of Workers (conducted by Japanese Trade Union Confederation Research Institute for Advancement of Living Standards)," was provided by the Social Science Japan Data Archive, Center for Social Research and Data Archives, Institute of Social Science, The University of Tokyo, and Japanese Trade Union Confederation Research Institute for Advancement of Living Standards. The views expressed here, as well as any remaining errors, are those of the authors and should not be ascribed to the Bank of Japan or the Monetary Affairs Department.

  1. *1Monetary Affairs Department, Bank of Japan
    E-mail : yuuichirou.itou@boj.or.jp
  2. *2Monetary Affairs Department, Bank of Japan
    E-mail : souhei.kaihatsu@boj.or.jp

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