Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324838 
Year of Publication: 
2025
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1721
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
Abstract: 
Using a randomized control trial of approximately 1,000 firm pairs in New Zealand that have a customer-supplier relationship, we provide an information treatment to analyze both the direct effects on expectations and actions of firms receiving this information and the spillover effects on connected firms that did not directly receive information. In a follow-up three months later, we find direct and spillover effects on expectations and actions that are both significant and of comparable magnitude. An increase in expected GDP growth increases prices and employment; an increase in expected GDP uncertainty reduces prices, investment, and employment. We provide evidence that it is communication between the firms, as opposed to observable actions, driving the spillover effect on the expectations of connected firms. This is consequential as we find communication to be symmetric upstream vs downstream, while propagation via actions is asymmetric. We embed firm-to-firm communication along the supply chain in a New Keynesian pricing problem and discuss its implications for the transmission of aggregate uncertainty to firms pricing decisions and aggregate inflation.
Subjects: 
Communication
Firms
Macroeconomic expectations
Networks
Spillovers
JEL: 
D8
E3
E4
E5
L14
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Working Paper

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