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Contracts and firms’ inflation expectations

Author

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  • Saten Kumar
  • Dennis Wesselbaum

Abstract

We use novel survey data to study firms’ inventory contracts. We document facts about the usage of purchase and sale contracts. We find that firms purchase and sell inventory through three contractual arrangements: fixed price and quantity, fixed price only, and fixed quantity only. The former holds the largest share of contracts. The average duration of purchase contracts is not very different from the average duration of sale contracts. We then find that the upward bias in inflation expectations is a feature of firms that do not purchase or sell largely through contracts. Our findings are useful in the calibration of sticky price models.

Suggested Citation

  • Saten Kumar & Dennis Wesselbaum, 2021. "Contracts and firms’ inflation expectations," CAMA Working Papers 2021-85, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-85
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-10/85_2021_kumar_wesselbaum.pdf
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    Keywords

    Contracts; Inflation Expectations; Survey;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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