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Inflation Expectations and Firm Decisions: New Causal Evidence

Olivier Coibion, Yuriy Gorodnichenko and Tiziano Ropele ()

No 25412, NBER Working Papers from National Bureau of Economic Research, Inc

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 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 demand for credit, and reduce their employment and capital. 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.

JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-eur, nep-mac and nep-mon
Note: EFG IFM ME
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Published as Olivier Coibion & Yuriy Gorodnichenko & Tiziano Ropele, 2020. "Inflation Expectations and Firm Decisions: New Causal Evidence*," The Quarterly Journal of Economics, vol 135(1), pages 165-219.

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Related works:
Journal Article: Inflation Expectations and Firm Decisions: New Causal Evidence (2020) Downloads
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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