This paper examines which macroeconomic signals shape household expectations and finds that unemployment shocks play a more influential role than inflation shocks. Using daily data, we identify which announcements prompt households to revise their expectations. We construct two shock series—assuming households are either sophisticated or naive—based on the surprise components of announcements. Labor market news strongly influences both general economic sentiment and inflation expectations. Even when inflation rises and unemployment falls, households respond more to unemployment shocks. Most changes in inflation expectations are driven by labor market shocks. During negative supply and demand shocks, unemployment remains the dominant driver.

This paper investigates the prevalence and characteristics of poor hand-to-mouth (P-HtM) and wealthy hand-to-mouth (W-HtM) households in India-an emerging economy where high household savings coexist with limited liquidity and weak credit access. Using a harmonized dataset that combines two nationally representative surveys, we construct household-level balance sheets including income, consumption, and liquid and illiquid assets. We classify households into poor and wealthy HtM categories following the methodology of Kaplan et al. (2014), and use a range of machine learning models to impute missing income data. Our findings indicate that while P-HtM households account for 2-5% of the population, W-HtM households comprise a much larger share-15-27%, with total HtM prevalence ranging from 17-32%. Classifications based solely on net worth substantially understate this share. We also find that average propensities to consume are similar across HtM and non-HtM groups, highlighting the broader financial constraints facing Indian households. These results underscore the importance of distinguishing between liquidity and net worth when evaluating consumption behavior and the transmission of fiscal and monetary policy in developing economies.  

This paper provides new empirical evidence on the effects of monetary policy shocks on household consumption, income, and employment in a large developing economy. Using high-frequency identification of monetary surprises combined with local projection methods, we estimate dynamic impulse responses to both current and expected policy shocks. Our results indicate that a contractionary shock to the short-term policy rate raises consumption and income on impact but reduces them in the medium run, while employment declines persistently. In contrast, a contractionary shock to the expected path of future interest rates increase consumption and employment but lowers income. The effects are stronger after the first quarter, suggesting delayed transmission. We also observe heterogeneity across socio-economic groups: rural households, those with lower education, women, younger and older workers, and lower-caste groups exhibit significantly larger consumption declines. A back-of-the-envelope calculation yields a marginal propensity to consume of about 40 percent out of transitory, policy induced income changes. Our findings highlight the importance of distributional channels in shaping the aggregate transmission of monetary policy in developing economies. 

The savings rate in the Indian economy has declined sharply since 2007 and approached a low of 29% of GDP in 2020. In this paper, we take a closer look at the historical evolution of aggregate savings in India, as well as its different components. We use a simple framework that seeks to explain the time variation in savings over the sample period. We find that increased prosperity more than explains the decline in savings of Indian households, while the decline in old age dependency was a major offset. Our baseline forecast implies a roughly 2 percentage point decline in household savings as a fraction of GDP over the next five years. We build some medium term scenarios to understand the trade-offs going forward.