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Inflation Expectations and Corporate Borrowing Decisions: New Causal Evidence

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  • Ropele, Tiziano
  • Gorodnichenko, Yuriy
  • Coibion, Olivier

Abstract

We match survey data of Italian firms that includes a repeated experiment in which information about inflation is randomly provided to firms over time with detailed credit data that covers the borrowing decisions of firms. This allows us to study how exogenous variation in inflation expectations causally affects the borrowing decisions of Italian firms. We document a number of new results. Firms with exogenously higher inflation expectations end up paying higher interest rates on average but do not change the overall demand of loans. Instead, we find a significant rebalancing of firms’ borrowing decisions away from lower-interest long-term loans and toward higher-interest short-term loans. In anticipation of rising future interest rates linked to higher expected inflation, firms also take on new long-term loans to pay down existing loans, thereby locking in interest rate savings. Firms that are relatively more knowledgeable about financial tools engage in the latter particularly strongly.

Suggested Citation

  • Ropele, Tiziano & Gorodnichenko, Yuriy & Coibion, Olivier, 2025. "Inflation Expectations and Corporate Borrowing Decisions: New Causal Evidence," CEPR Discussion Papers 20103, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:20103
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    2. Fiorella De Fiore & Marco Jacopo Lombardi & Giacomo Mangiante, 2025. "The asymmetric and heterogeneous pass-through of input prices to firms' expectations and decisions," BIS Working Papers 1305, Bank for International Settlements.
    3. Lee, Chien-Chiang & Yahya, Farzan, 2025. "Understanding the asymmetric impact of non-fundamental behavioral shocks on trade efficiency: Evidence from China's trade partners," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 237-263.
    4. Okan Akarsu & Emrehan Aktug & Huzeyfe Torun, 2025. "Inflation Expectations and Firms' Decisions in High Inflation: Evidence from a Randomized Control Trial," Working Papers 2512, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    5. Bartscher, Alina & Duernecker, Georg & Goensch, Johannes & Wehrhöfer, Nils, 2026. "Causal Effects of Interest Rate Beliefs on Firm Decisions and their Aggregate Implications," CEPR Discussion Papers 21123, Centre for Economic Policy Research.
    6. Dräger, Lena & Gründler, Klaus & Potrafke, Niklas, 2025. "Political shocks and inflation expectations: Evidence from the 2022 Russian invasion of Ukraine," Journal of International Economics, Elsevier, vol. 153(C).
    7. Anastasiou, Dimitris & Pasiouras, Fotios & Rizos, Anastasios & Stratopoulou, Artemis, 2025. "Discouraged Borrowers and Sentimental Shocks," Journal of International Money and Finance, Elsevier, vol. 157(C).

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    Keywords

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics

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