Expectations and Choice in Macroeconomics: Causal Evidence

Most economic decisions, such as how much to save, what price to set or whether to hire a new worker, depend on what people expect about the future. However, understanding exactly how expectations affect people's decisions has been a challenge since expectations and decisions are made jointly. This project implements quarterly surveys of households participating in a consumer spending program to address this challenge and explore how expectations lead to economic decisions. First, a random group of participants will receive information on economy such as on monetary policy and inflation, which will change some of their expectations on the economy. Second, the survey will help in measuring and tracking those expectations both before and after the new information is provided to participants. Third, the project tracks how these changes in their expectations affect their actual spending decisions through consumer spending program they are enrolled. Jointly, this will provide unprecedented, large-scale exploration on how households form expectations with new information and how these expectations affect their economic decisions. Thus, the project will also help in understanding how communication strategies of policy makers may affect household economic decisions through their impact on household expectations.

This project will study the link between the expectations of economic agents and their actions in a clear causal framework. The project will introduce randomized information treatments in a new regular survey of households whose spending is simultaneously tracked on a daily frequency. Randomized information treatments provide an exogenous source of variation in the beliefs of agents. Surveys allow for measuring those beliefs, both before and after the treatments. Micro-data then allow for assessing how agents' actions change. Jointly, these tools generate exogenous variation in beliefs which can then be used to characterize exactly how changes in beliefs translate into economic decisions. Within this framework, we will be able to study the specific mechanisms through which expectations affect decisions, how agents form their expectations about different variables jointly, what communications strategies policy-makers can use to shape the expectations of agents, and how these effects can be mapped into structural models of decision-making and their underlying parameters.