Inflation Expectation,Household Debt And Economic Fluctuation

In recent years,much attention has been paid to the relationship between household debt and macroeconomics.The 2008 international financial crisis is a typical economic event of "small cause but big impact" in the economic history.The trigger of the crisis was the default of the subprime loan in the household sector,which was transmitted and amplified by the financial system and eventually became a big crisis that hit the global economy and financial system hard.The financial crisis caused by the default of the family’s subprime mortgage loan plunged the American economy into the "Great Recession",and many scholars began to pay attention to the relationship between household debt and the macro economy.After the international financial crisis,China’s household debt has experienced a substantial expansion,and the leverage ratio of the household sector continues to rise.The increasing debt burden will increase the risk of household debt default.In2020,the COVID-19 pandemic had an unprecedented negative impact on the real economy,which increased the debt repayment pressure of households with liquidity constraints,led to a rise in the risk of household debt default,and increased macroeconomic uncertainty.Inflation expectation is the core of macroeconomic operation and monetary policy implementation.Since the COVID-19 pandemic,loose monetary policies around the world have strengthened inflation expectations.Inflation expectation is one of the important factors for households to make decisions such as consumption and investment.Upward pressure of inflation will bring about changes in households’ individual behaviors,and eventually bring about changes in household debt level and household leverage ratio.The reasonable control of inflation expectation and household debt level is an important part of price stability and financial stability.To clarify the impact of inflation expectation on household debt and the impact of household debt level on the macro-economy,to guard against household debt risks and to promote the steady growth of our economy has become an important practical problem urgently to be solved in our current macro-policy regulation.This paper takes the impact of inflation expectation on household debt as the starting point,on this basis,discusses the impact of the change of household debt caused by the change of inflation expectation on economic fluctuations,and further explores the ripple effect of household debt.This paper mainly includes three parts:First,clarify the relationship between inflation expectation and household debt and establish an econometric model for analysis.Second,the Stock-Flow Consistent Model is used to study the impact of household debt changes on economic fluctuations caused by changes in inflation expectations.Third,the input-output funds link matrix between departments is constructed to more accurately quantify the impact of household debt on various departments and financial projects.Through analysis,this paper finds that: first,inflation expectation has a significant negative impact on household debt.When other variables remain unchanged,every 1%increase in inflation expectation will shrink household debt by 0.1%.For every 1per cent drop in inflation expectations,household debt expands by 0.1 per cent.Second,the expansion of household debt brought about by lower inflation expectations will have a weak boost in the short run to GDP,total output,labor force,household consumption,household disposable income,government consumption,government tax revenue,corporate profits,etc.Third,household debt as a whole has a negative limiting effect on the economy of more than 2.5 times.The ripple effect of household debt on the financial institutions,the household sector itself and the non-financial enterprise sector is relatively large,accounting for about 50%,18%-25% and 10%-23% of the total ripple effect of the sector respectively.Household debt has a large spillover effect on loans,deposits and bonds,accounting for about23%-40%,18%-38% and 5%-16% of the total spillover effect of financial transactions,respectively.Therefore,the regulatory authorities and macroeconomic decision-making departments should reasonably guide inflation expectations,guide investors to make reasonable investment,improve the financial literacy level of the household sector,enhance the financial decision-making ability of the household,so as to prevent the excessive rise of the household debt level,improve the household anti-risk ability,and ensure the steady growth of the macro-economy.