Information and the Formation of Inflation Expectations by Firms: Evidence from a Survey of Israeli Firms

Yuriy Gorodnichenko, Rafi Melnick and Ari Kutai
Additional contact information
Rafi Melnick: Reichman University

No 16334, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This study analyzes how firms form their inflation expectations during a regime change in monetary policy and a transition to a low-inflation environment. Using the Bank of Israel survey of firms, we document the basic properties of firms' inflation expectations and examine how Israeli firms update their inflation expectations after receiving new information about inflation or monetary policy. We find that even after successful de-dollarization and disinflation a positive inflation surprise leads to a sizable upward adjustment in inflation expectations for the next year and quarter. A surprise hike in the monetary interest rate leads to a downward adjustment in inflation expectations.

Keywords: monetary policy; surveys; firms; inflation expectations (search for similar items in EconPapers)
JEL-codes: D22 E31 E52 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2023-07
New Economics Papers: this item is included in nep-ban and nep-mon
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Citations: View citations in EconPapers (2)

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Working Paper: Information and the Formation of Inflation Expectations by Firms: Evidence from a Survey of Israeli Firms (2023)
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