Inflation Expectations and Firm Decisions: New Causal Evidence / Olivier Coibion, Yuriy Gorodnichenko, Tiziano Ropele.

Format:

Book

Author/Creator:

Coibion, Olivier.

Contributor:

National Bureau of Economic Research.

Gorodnichenko, Yuriy.

Ropele, Tiziano.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25412.

NBER working paper series no. w25412

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Inflation Expectations and Firm Decisions

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

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.

Notes:

Print version record

December 2018.