Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279302 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10552
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper examines the impact of carbon pricing on firms' inflation expectations and its implications for central banks' price stability mandate. Carbon policy shocks are identified using high-frequency identification and combined with French firm-level survey data. A change in carbon price increases firms' inflation expectations as well as their own expected and realized price growth. The effect on price expectations is more persistent than on actual price growth, resulting in negative forecast errors in the medium-/long-run. We show that a significant portion of the increase in inflation expectations is driven by indirect effects. Firms rely on their own business conditions to form expectations about aggregate price dynamics. Therefore, the expected positive growth in their own prices significantly contributes to the observed increase in inflation expectations. Firms' responses to the shocks vary based on their energy intensity. Low energy-intensive firms are worse forecasters of the impact that the shocks will have on the evolution of their own prices.
Subjects: 
climate policies
carbon pricing
inflation expectations
monetary policy
survey data
JEL: 
E31
E52
E58
Q43
Q54
Document Type: 
Working Paper
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