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Information and the Formation of Inflation Expectations by Firms: Evidence from a Survey of Israeli Firms

Author

Listed:
  • Yuriy Gorodnichenko
  • Ari Kutai
  • Rafi Melnick

Abstract

This study analyzes how firms form their inflation expectations after a regime change in monetary policy and a transition to a low-inflation environment. Using the Bank of Israel survey of firms, we document the basic properties of firms' inflation expectations and examine how Israeli firms update their inflation expectations after receiving new information about inflation or monetary policy. We find that even after successful de-dollarization and disinflation, a positive inflation surprise leads to a sizable upward adjustment in inflation expectations. Our results suggest that managers' experiences keep firms attentive to inflation long after price stability is achieved.

Suggested Citation

  • Yuriy Gorodnichenko & Ari Kutai & Rafi Melnick, 2026. "Information and the Formation of Inflation Expectations by Firms: Evidence from a Survey of Israeli Firms," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(4), pages 1-33, October.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:4:p:1-33
    DOI: 10.1257/mac.20230289
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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