New information and inflation expectations among firms

Serafin Frache and Rodrigo Lluberas

No 781, BIS Working Papers from Bank for International Settlements

Abstract: Using data from a unique and novel monthly firm-level survey on inflation expectations in Uruguay we first present stylized facts about the inflation expectation formation process and then show how information acquisition affects firms' inflation expectations. We show that firms' forecasts are close to observed inflation, that a sizable proportion of firms do not revise their expectations, and that there is substantial disagreement about future inflation among firms. We also present evidence on industrial sector effects on inflation forecasts and show that the correlation between inflation expectations and cost expectations increases with the forecast time horizon. We then exploit peculiarities of the collective wage bargaining negotiation mechanism to estimate the impact of acquiring information about past inflation on expected future inflation. Our results imply that firms that adjust wages expect lower inflation, revise their expectations downwards and make smaller forecast errors than firms that do not adjust wages. We find no effect of wage adjustments on firms' own cost expectations and that disagreement among firms is lower in the months of wage adjustment. The latter suggests that inflation expectations tend to converge as firms are more informed about past inflation.

Keywords: inflation expectations; firms' survey; new information (search for similar items in EconPapers)
JEL-codes: D22 D84 E31 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-04
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Related works:
Working Paper: New information and inflation expectations among firms (2019)
Working Paper: New information and inflation expectations among firms (2017)
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