Asymmetric Consumption Responses to Equivalent Real Interest Rate Changes

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We study how individuals adjust consumption in response to changes in the real interest rate using a large, preregistered, within-subject survey experiment on a representative sample of the German population. Respondents evaluate hypothetical scenarios in which the real interest rate rises by five percentage points through either an increase in the nominal interest rate or an equivalent decline in expected inflation. While classic intertemporal choice models predict identical responses across these scenarios, we find a clear asymmetry: respondents plan sizable cuts in consumption, higher saving, and lower borrowing when nominal rates increase, yet adjust these margins much less when inflation falls. A potential mechanism for such asymmetric behavior is a differential wealth effect across scenarios. While net wealth strongly predicts consumption adjustments in the interest rate scenario, it has weaker, and often insignificant, effects in the inflation scenario. Falling inflation is also associated with more contradictory choices, for example reporting higher spending and higher saving while leaving borrowing unchanged, which suggests greater confusion about its effects. Together, these findings suggest that households more readily internalize the wealth consequences of nominal interest rate changes than of disinflation, which has implications for the design and communication of monetary policy.