Macroeconomic Shocks and Business Inflation Expectations
27 Pages Posted: 1 May 2024
Date Written: April 30, 2024
Abstract
Understanding firms’ inflation expectations plays a critical role in central bank policymaking. This is more evident post Covid-19 and Russia-Ukraine war when central banks across the world are struggling to anchor inflation expectations. This paper uses unique firm-level survey data to analyse the drivers of inflation expectations of firms. We identify key channels for the transmission of shocks – energy, monetary policy, demand and exchange rate. Our findings suggest that increases in energy prices and exchange rates show up in the price-setting behaviour of firms. This points towards the importance of external sector management for inflation targeting by the monetary authority.
Keywords: Inflation Expectations, Firms, Macroeconomic Shocks, Proxy SVAR, Local Projections
JEL Classification: E31, E52, E61
Suggested Citation: Suggested Citation