The Pass-Through of Inflation Expectations into Prices and Wages: Evidence from an RCT Survey

Klaus Abberger, Anne Kathrin Funk, Michael Lamla, Sarah Lein and Stefanie Siegrist

No 19595, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies how firms adjust prices and wages in response to inflation expectations at different horizons, and how these responses relate to underlying price-setting frictions. Using a survey of Swiss firms, we generate exogenous variation in inflation expectations through randomized information provision and a complementary vignette. Short-term inflation expectations pass through to both prices and wages, while long-term expectations have no effect on prices and only modest effects on wages. The price response is primarily due to changes in expected nominal costs, with no systematic adjustment in expected markups. Pass-through also varies with price-setting behavior: firms with Taylor pricing exhibit higher pass-through than firms with state-dependent pricing, consistent with firms placing weight on inflation expectations only over the horizon relevant for their price-setting decisions, which limits the role of longer-term expectations.

Keywords: Prices; Wages (search for similar items in EconPapers)
JEL-codes: E31 E52 E60 (search for similar items in EconPapers)
Date: 2024-10
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