Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/193331 
Year of Publication: 
2018
Series/Report no.: 
IZA Discussion Papers No. 12037
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
inflation expectations
surveys
inattention
JEL: 
E2
E3
Document Type: 
Working Paper

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