Monetary policy and the rigidity of firm employment expectations

Martin Groiss and David Sondermann

No 3272, Working Paper Series from European Central Bank

Abstract: This paper examines how monetary policy announcements affect firms’ employment expectations. Using German survey data, we combine high-frequency monetary policy surprises with survey response dates to identify the immediate and dynamic effects of monetary policy on firm-level expectations and subsequent employment. Contractionary shocks lead firms to revise employment plans downward immediately and persistently, eventually reducing employment growth. Initially, hiring plans are reduced, while layoffs increase later. Production expectations adjust twice as often but revert faster, consistent with greater labour market rigidity. Labour market institutions shape these responses: firms subject to the minimum wage or with lower collective bargaining coverage revise employment expectations more strongly. Financially constrained firms exhibit disproportionately larger downward revisions, indicating that the financial accelerator operates already at the expectation formation stage. Because firms adjust plans well before effects appear in aggregate data, employment expectations provide an early measure of monetary policy transmission to the labour market. JEL Classification: E24, E52, J20, J63

Keywords: employment expectation; hiring; labour market; monetary policy surprises; survey data (search for similar items in EconPapers)
Date: 2026-08
New Economics Papers: this item is included in nep-lma and nep-mon
Note: 943715
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263272

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