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Carbon pricing and inflation expectations: Evidence from France

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  • Hensel, Jannik
  • Mangiante, Giacomo
  • Moretti, Luca

Abstract

We study how firms’ price expectations and decisions are affected by carbon pricing, using a survey of French manufacturing firms. Exogenous variations in the price of carbon are obtained by high-frequency identification. A change in carbon price increases firms’ inflation expectations as well as their own expected and realized price growth. Initially, positive forecast errors emerge, but over time, the impact on price expectations proves to be more enduring than on actual price growth, leading to negative forecast errors in the medium- to long-run. Furthermore, our analysis reveals that firms’ responses to these carbon pricing shocks exhibit considerable heterogeneity. Low energy-intensive firms are worse at forecasting the effects of the shock on the evolution of their own prices and firms with narrower profit margins are less able to pass through the increase in energy costs to the prices of their final products. These findings align with models of information rigidities, shedding new light on how firms navigate and adapt to carbon pricing policies.

Suggested Citation

  • Hensel, Jannik & Mangiante, Giacomo & Moretti, Luca, 2024. "Carbon pricing and inflation expectations: Evidence from France," Journal of Monetary Economics, Elsevier, vol. 147(C).
  • Handle: RePEc:eee:moneco:v:147:y:2024:i:c:s0304393224000461
    DOI: 10.1016/j.jmoneco.2024.103593
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    More about this item

    Keywords

    Climate policies; Carbon pricing; Inflation expectations; Monetary policy; Survey data;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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