The Role of the Household Balance Sheet for the Consumption-Inflation Sensitivity

Last registered on July 18, 2022

Pre-Trial

Trial Information

General Information

Title
The Role of the Household Balance Sheet for the Consumption-Inflation Sensitivity
RCT ID
AEARCTR-0009735
Initial registration date
July 12, 2022

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
July 18, 2022, 9:25 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Affiliation
Goethe University Frankfurt

Other Primary Investigator(s)

Additional Trial Information

Status
In development
Start date
2022-06-01
End date
2022-10-31
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
To study the role of the household balance sheet for the sensitivity of consumption to inflation beliefs, I run a randomized control trial on customers of a large German bank. Participating bank customers first answer questions on their beliefs about inflation, on how various balance-sheet positions are affected by unexpected changes in inflation, as well as on the perceived past change in their real net worth. The next stage includes the information intervention, in which I randomly divide the sample into three groups, of which two receive information treatments and one serves as a control group. The two treatments are very similar, other than that one focuses on nominal assets (savings products, bonds, etc.), while the other is on nominal debt. The treatment information comprise (i) the current rate of inflation, (ii) an explanation that this recent increase is relatively harmful for savers (in the case of the asset treatment) / beneficial for debtors (in the case of the debt treatment), and (iii) a calculation of the deterioration in the real value of a representative savings product (asset treatment) / loan (debt treatment) because of the recent surge in inflation.

Following the information provision, I test for treatment effects on consumption plans, perceived changes in subjects’ real net worth, and a hypothetical real-estate transaction. Moreover, I elicit macroeconomic expectations and subjects answer questions about their background, balance sheet, risk preferences, and financial literacy. Importantly, I will also use bank data to investigate whether the treatments feed into actual consumption and financial choices. I also use bank data to investigate how the surge in inflation since 2021 has affected bank customers’ consumption-savings decisions as a function of their net nominal positions, which I partially observe in the bank data and elicit in the survey.
External Link(s)

Registration Citation

Citation
Schnorpfeil, Philip. 2022. "The Role of the Household Balance Sheet for the Consumption-Inflation Sensitivity." AEA RCT Registry. July 18. https://doi.org/10.1257/rct.9735
Experimental Details

Interventions

Intervention(s)
Intervention Start Date
2022-07-13
Intervention End Date
2022-07-27

Primary Outcomes

Primary Outcomes (end points)
Survey: consumption plan, perceived change in real net worth
Bank data: savings-consumption decisions
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
I select bank customers to participate in the survey experiment as follows: I invite all bank customers with observable (categorized) consumption as well as all bank customers without consumption but who have outstanding debt at the bank to participate in the survey experiment. Customers with observable consumption and with savings or debt products from the participating bank are assigned to this research project, while all other customers are randomly assigned to this research project or a related research project that takes place at the same time.

The survey begins by asking two MPC questions based on hypothetical gains or losses based on both actual income/payments or perceived wealth changes. I then elicit beliefs about inflation, such as how respondents assess its importance for their balance sheet and their perception of current and future inflation. I then ask respondents to decompose their balance sheet and to estimate recent changes in their real net worth.

The next stage includes the information intervention, with the objective to shift beliefs about how unexpected inflation affects nominal assets and liabilities. For that, I randomly divide the sample into three groups, of which two receive information treatments and one serves as a control group. The two treatments are very similar, other than that one focuses on nominal assets (savings products, bonds, etc.), while the other is on nominal debt. The treatment information comprise (i) the current rate of inflation, (ii) an explanation that this recent increase is relatively harmful for savers (in the case of the asset treatment) / beneficial for debtors (in the case of the debt treatment), and (iii) a calculation of the deterioration in the real value of a representative savings product (asset treatment) / loan (debt treatment) because of the recent surge in inflation.

In the post-treatment stage, I elicit consumption plans and, again, perceived changes in subjects’ real net worth to investigate effects on planned consumption of treatment-induced changes in perceived real wealth. Respondents also complete a hypothetical real-estate transaction and respond to questions on their beliefs about nominal balance-sheet positions. Moreover, I elicit an array of expectations (macro and income) and subjects answer questions about their background, balance sheet, risk preferences, and financial literacy. Importantly, I will also use bank data to investigate whether the treatments feed into actual consumption and financial choices.
Experimental Design Details
Not available
Randomization Method
Randomization is performed by a computer that assigns incoming subjects to different experimental arms
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
N/A
Sample size: planned number of observations
Around 6,000
Sample size (or number of clusters) by treatment arms
Around 2,000
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
German Association for Experimental Economic Research e.V.
IRB Approval Date
2022-06-04
IRB Approval Number
5hjDTgn8