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The Heterogeneity of the Inflation Expectations of Italian Firms along the Business Cycle

Author

Listed:
  • Laura Bartiloro

    (Bank of Italy)

  • Marco Bottone

    (Bank of Italy)

  • Alfonso Rosolia

    (Bank of Italy)

Abstract

We investigate how the cross-sectional heterogeneity of firms' inflation expectations reflects information availability and awareness of recent macroeconomic developments, observable firm characteristics, and broader macroeconomic developments using the Bank of Italy's survey on businesses' inflation and growth expectations. We find that, on average, about half of the dispersion of expectations is traceable to a lack of information about the most recent price developments; firms incorporate new information into their expectations within a quarter; the dispersion of expectations is related in a statistically significant way to some important aggregate economic variables, and it is greater when current inflation is farther away from the ECB's price stability goal. Since 2015 the weight attributed to prior beliefs of low inflation has steadily increased and the uncertainty surrounding them has decreased. Furthermore, since 2014 the empirical connection between the dispersion of expectations and the distance from the ECB price stability goal has become considerably weaker. These two facts suggest an increased risk of inflation expectations being de-anchored.

Suggested Citation

  • Laura Bartiloro & Marco Bottone & Alfonso Rosolia, 2019. "The Heterogeneity of the Inflation Expectations of Italian Firms along the Business Cycle," International Journal of Central Banking, International Journal of Central Banking, vol. 15(5), pages 175-205, December.
    • Handle: RePEc:ijc:ijcjou:y:2019:q:5:a:5
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    Citations

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    Cited by:

    1. Marco Bottone & Cristina Conflitti & Marianna Riggi & Alex Tagliabracci, 2021. "Firms' inflation expectations and pricing strategies during Covid-19," Questioni di Economia e Finanza (Occasional Papers) 619, Bank of Italy, Economic Research and International Relations Area.
    2. Bottone, Marco & Tagliabracci, Alex & Zevi, Giordano, 2022. "Inflation expectations and the ECB’s perceived inflation objective: Novel evidence from firm-level data," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 15-34.
    3. Conti, Antonio M., 2021. "Resurrecting the Phillips Curve in Low-Inflation Times," Economic Modelling, Elsevier, vol. 96(C), pages 172-195.
    4. Baumann, Ursel & Darracq Pariès, Matthieu & Westermann, Thomas & Riggi, Marianna & Bobeica, Elena & Meyler, Aidan & Böninghausen, Benjamin & Fritzer, Friedrich & Trezzi, Riccardo & Jonckheere, Jana & , 2021. "Inflation expectations and their role in Eurosystem forecasting," Occasional Paper Series 264, European Central Bank.
    5. Marco Bottone & Alex Tagliabracci & Giordano Zevi, 2021. "Inflation expectations and the ECB’s perceived inflation objective: novel evidence from firm-level data," Questioni di Economia e Finanza (Occasional Papers) 621, Bank of Italy, Economic Research and International Relations Area.
    6. Sara Cecchetti & Davide Fantino & Alessandro Notarpietro & Marianna Riggi & Alex Tagliabracci & Andrea Tiseno & Roberta Zizza, 2021. "Inflation expectations in the euro area: indicators, analyses and models used at Banca d’Italia," Questioni di Economia e Finanza (Occasional Papers) 612, Bank of Italy, Economic Research and International Relations Area.
    7. Alessandro Mistretta, 2021. "Business cycle synchronization or business cycle transmission? The effect of the German slowdown on the Italian economy," Temi di discussione (Economic working papers) 1346, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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