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Inflation Expectations and Firm Decisions: New Causal Evidence

Olivier Coibion, Yuriy Gorodnichenko and Tiziano Ropele ()

No 12037, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms' economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation (or the European Central Bank's inflation target) whereas other firms are not. This information treatment generates exogenous variation in inflation expectations. We find that higher inflation expectations on the part of firms leads them to raise their prices, increase their utilization of credit, and reduce their employment. However, when policy rates are constrained by the effective lower bound, demand effects are stronger, leading firms to raise their prices more and no longer reduce their employment.

Keywords: inflation expectations; surveys; inattention (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2018-12
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Citations: View citations in EconPapers (3) Track citations by RSS feed

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Related works:
Working Paper: Inflation expectations and firms’ decisions: new causal evidence (2019) Downloads
Working Paper: Inflation Expectations and Firm Decisions: New Causal Evidence (2018) Downloads
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