Consumer behaviour

Research in this area aims to understand the behaviour of consumers – their choice of which goods and services to purchase, the sensitivity of their decisions to changes in prices, the interdependence of decisions made by firms and those made by consumers, and the implications of all these factors for government policy and for the wider economy.

Past research at IFS has made substantial contributions to the understanding of these topics. Ongoing areas of interest include: household consumption and how it changes over the life cycle; the modelling of demand; behavioural economics and rationality; the measurement of consumption and expenditure; consumer and firm behaviour in the food market; the construction of price indices; and the distributional impact of inflation.

Is inflation default? The role of information in debt crises

| Working Paper

We consider a two-period Bayesian trading game where in each period informed agents decide whether to buy an asset ("government debt") after observing an idiosyncratic signal about the prospects of default. While second-period buyers only need to forecast default, first-period buyers pass the asset to the new agents in the secondary market, and thus need to form beliefs about the price that will prevail at that stage. We provide conditions such that coarser information in the hands of second-period agents makes the price of debt more resilient to bad shocks not only in the last period, but in the first one as well. We use this model to study the consequences of issuing debt denominated in domestic vs. foreign currency: we interpret the former as subject to inflation risk and the latter as subject to default risk, with inflation driven by the information of a less-sophisticated group of agents endowed with less precise information, and default by the information of sophisticated bond traders. Our results can be used to account for the behavior of debt prices across countries following the 2008 nancial crisis, and also provide a theory of "original sin."

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Designing alcohol taxes

| Video clip

Alcohol consumption can have negative externalities. In this video, Kate Smith discusses how to design taxes when costs associated with drinking vary across people. This video was recorded at the Royal Economic Society Annual Conference in April 2017.

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Banning junk food adverts

| Video clip

Banning junk food adverts

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