Firms' Inflation Expectations and Pricing Strategies During Covid-19

43 Pages Posted: 22 Jul 2021

Date Written: June 22, 2021

Abstract

We use the Bank of Italy's Survey on Inflation and Growth Expectations to explore how the COVID-19 shock affects firms’ pricing policies and their inflation expectations. We find that the longer the time deemed necessary to return to their normal business levels and the greater the attention they pay to their competitors’ pricing policies, the more likely firms are to reduce their own product prices. Moreover, firms' inflation expectations react to the expected persistence of the macroeconomic effects of the shock. We rationalize this evidence through the lens of a general equilibrium model.

Keywords: Covid-19, firms’ inflation expectations, firms' pricing strategies, survey data

JEL Classification: E2, E31, E32, I10

Suggested Citation

Riggi, Marianna and Bottone, Marco and Conflitti, Cristina and Tagliabracci, Alex, Firms' Inflation Expectations and Pricing Strategies During Covid-19 (June 22, 2021). Bank of Italy Occasional Paper No. 619, Available at SSRN: https://ssrn.com/abstract=3891604 or http://dx.doi.org/10.2139/ssrn.3891604

Marianna Riggi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Marco Bottone

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Cristina Conflitti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Alex Tagliabracci

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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