(UM13-05) - Expectations and Consumption
Michael Hurd and Susann Rohwedder
The objective of this proposed research is to estimate the effect of expectations on consumption. We will use low frequency data on expectations, consumption (spending) and economic resources from the Health and Retirement Study and high frequency data from the American Life Panel on those same variables. We will take advantage of the large unanticipated changes in the economy associated with Great Recession, and corresponding changes in expectations, to propose a research design that will take the shocks as exogenous, and hence, the changes in expectations as exogenous. Our main expectations measures will focus on unemployment, stock market gains and housing prices. We will estimate how changes in expectations affected changes in total consumption, as well as in subcategories of consumption.