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The impact of guidance, short-term dynamics and individual characteristics on firms' long-term inflation expectations

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  • Dr. Hans-Ueli Hunziker
  • Christian Raggi
  • Dr. Rina Rosenblatt-Wisch
  • Dr. Attilio Zanetti

Abstract

Long-term inflation expectations are an essential element in the transmission of a central bank’s monetary policy. However, it is not fully understood how these long-term inflation expectations behave, as well as whether and how they can be managed. In this paper, we shed light on possible drivers of long-term inflation expectations of firms using information from the Swiss National Bank (SNB) regional network survey. We extended the standard survey with questions to test whether the long-term inflation expectations of firms can be actively influenced by providing information regarding the central bank’s objective, its past performance and long-term average inflation. We find that this type of information, which we call guidance: a) can influence the long-term inflation expectations of firms to a certain extent; and b) surprisingly, it does not have an impact on the uncertainty surrounding the expectations. However, c) uncertainty itself is positively correlated with the level of inflation expectations, and respondents who are more uncertain place greater weight on the information that they receive. Furthermore, d) short-term inflation expectations; e) the individual characteristics of the firms related to prices; and f) a large unexpected shock, in our case, a large shock to the exchange rate, can help to explain the behaviour of long-term inflation expectations.
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Suggested Citation

  • Dr. Hans-Ueli Hunziker & Christian Raggi & Dr. Rina Rosenblatt-Wisch & Dr. Attilio Zanetti, 2018. "The impact of guidance, short-term dynamics and individual characteristics on firms' long-term inflation expectations," Working Papers 2018-18, Swiss National Bank.
  • Handle: RePEc:snb:snbwpa:2018-18
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    Cited by:

    1. Olivier Coibion & Yuriy Gorodnichenko & Tiziano Ropele, 2020. "Inflation Expectations and Firm Decisions: New Causal Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 165-219.
    2. Bernardo Candia & Olivier Coibion & Yuriy Gorodnichenko, 2021. "The Inflation Expectations of U.S. Firms: Evidence from a new survey," NBER Working Papers 28836, National Bureau of Economic Research, Inc.
    3. Monique B. Reid & Pierre L. Siklos, 2022. "How Firms and Experts View The Phillips Curve: Evidence from Individual and Aggregate Data from South Africa," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(12), pages 3355-3376, September.
    4. Olivier Coibion & Yuriy Gorodnichenko & Michael Weber, 2022. "Monetary Policy Communications and Their Effects on Household Inflation Expectations," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1537-1584.
    5. Frédérique Savignac & Erwan Gautier & Yuriy Gorodnichenko & Olivier Coibion, 2021. "Firms' Inflation Expectations: New Evidence from France," NBER Working Papers 29376, National Bureau of Economic Research, Inc.
    6. Caruso-Bloeck, Martin & Mello, Miguel & Ponce, Jorge, 2023. "News of disinflation and firms’ expectations: New causal evidence," Journal of International Money and Finance, Elsevier, vol. 137(C).

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    More about this item

    Keywords

    Long-term inflation expectations; firms' inflation expectations; guidance and uncertainty;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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