Macroeconomic Shocks and Business Inflation Expectations

27 Pages Posted: 1 May 2024

See all articles by Janani Rangan

Janani Rangan

Indian Institute of Management Ahmedabad

Abhiman Das

Indian Institute of Management Ahmedabad

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

Rangan, Janani and Das, Abhiman, Macroeconomic Shocks and Business Inflation Expectations (April 30, 2024). Available at SSRN: https://ssrn.com/abstract=4813470 or http://dx.doi.org/10.2139/ssrn.4813470

Janani Rangan (Contact Author)

Indian Institute of Management Ahmedabad ( email )

Abhiman Das

Indian Institute of Management Ahmedabad ( email )

Vastraour
Ahmedabad, 380015
India

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