Dynamic asset allocation and consumption under inflation inequality: The impacts of inflation experiences and expectationsShaoyu Li, Lijia Wei and Zhiwei Xu Economic Modelling, 2017, vol. 61, issue C, 113-125 Abstract: Differences in spending patterns and in price increases across goods and services lead to the unequal inflation experiences of households (called inflation inequality). These differences then cause disagreements in inflation expectations and eventually have a significant effect on households’ asset allocation and consumption decisions. The asset allocation model in this paper explains how inflation experiences affect household investment and consumption through corresponding inflation expectations, which are characterized by long-term expected inflation, the impact coefficient of the expected inflation and the correlation between expected inflation and the risky return. Using China's economic data, the empirical results show that significant differences in inflation expectation arise from income gap, regional inequality, different inflation measures and economic sector spending differences. Using the estimated coefficients, the calibration results have policy implications that households need more financing channels to resist inflation, especially in rural areas and in the raw material sector. Keywords: Inflation inequality; Inflation expectations; Asset allocation; Consumption (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:61:y:2017:i:c:p:113-125 DOI: 10.1016/j.econmod.2016.11.013 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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