The Pass-Through of Inflation Expectations into Prices and Wages: Evidence from an RCT Survey

Abstract

This paper examines the pass-through of inflation expectations into firms’ prices and wages using a survey with randomized information treatments to create exogenous variation in expectations. Our findings show that changes in inflation expectations influence both wages and prices. However, the pass-through is incomplete. In addition, we find that short-term inflation expectations have higher pass-through coefficients than long-term expectations, particularly for prices, and that the pass-through depends on the firms’ underlying price-setting behavior. Using a vignette in which firms are presented with hypothetical inflation scenarios, we find similar pass-through coefficients without relying on the variation generated by the information treatment.

Keywords: JEL Classification: E31, E52, E60 Inflation Expectation Pass-Through, Firm Surveys, Inflation Expectation Horizon, Prices, Wages, Price-Setting Behavior