Inflation expectations and the ECB’s perceived inflation objective: Novel evidence from firm-level data

Marco Bottone, Alex Tagliabracci and Giordano Zevi

Journal of Monetary Economics, 2022, vol. 129, issue S, S15-S34

Abstract: Using a unique experiment on a rich survey of Italian firms, we study how the awareness of the formulation of the ECB’s inflation aim shapes their inflation expectations. By means of a randomized controlled trial we show that, in years of low inflation, such awareness raises firms’ inflation expectations by about 25 basis points at all time horizons, shifting them closer to the ECB’s target. We also document that when there is room for interpretation of an official inflation objective, as in the case of the “below, but close to, 2%” formulation, economic agents have heterogeneous perceptions of that, with the majority of firms indicating values not as close to 2% as intended by the ECB. Consequently, this led firms to anchor their expectations to values lower than the official target. Evidence from firms show that this difficulty in interpreting the “below, but close to, 2%” formulation was tackled by the precise 2% definition of the ECB’s inflation target as announced in July 2021. However, firms paid little attention to this new formulation in the immediate aftermath of its announcement, which calls for further efforts in terms of communication by the central bank in order to reach a broader public.

Keywords: Firms’ inflation expectations; Information treatments; ECB’S inflation aim; Monetary policy; Survey data (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030439322200037X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:129:y:2022:i:s:p:s15-s34

DOI: 10.1016/j.jmoneco.2022.03.006

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().