How do firms form inflation expectations? Empirical evidence from the United States
Inflation expectations of firms affect their micro-decision-making behaviors and therefore impact the macro-economy. Thus, a deep understanding of how firms form inflation expectations benefits the achievement of central bank’s policy objectives on macro-economic sustainability and development. In t...
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Online Access: | http://dx.doi.org/10.1080/1331677X.2021.1958245 |
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doaj-89801078ce564b1f81d6af7a315788162021-08-24T14:40:58ZengTaylor & Francis GroupEkonomska Istraživanja1331-677X1848-96642021-07-010012010.1080/1331677X.2021.19582451958245How do firms form inflation expectations? Empirical evidence from the United StatesChi Zhang0Zhixin Liu1Yingying Xu2Yinpeng Zhang3School of Economics and Management, Beihang UniversitySchool of Economics and Management, Beihang UniversitySchool of Economics and Management, University of Science & Technology BeijingCollege of Economics, Shenzhen UniversityInflation expectations of firms affect their micro-decision-making behaviors and therefore impact the macro-economy. Thus, a deep understanding of how firms form inflation expectations benefits the achievement of central bank’s policy objectives on macro-economic sustainability and development. In this paper, we focus on the inflation expectations of firms from surveys. Specifically, the Naïve Expectation, Adaptive Expectation, Rational Expectation, VAR, and Heterogeneous Static Expectation formation models are adopted to test the models being used by firms to form inflation expectations. Empirically, this paper reveals the heterogeneity between the formation mechanisms of households and firms. Then, empirical results reject the rational expectation hypothesis of firms’ inflation expectations, which means that they are not perfectly rational. Finally, we find that the inflation perception is a non-negligible factor in forming firms’ inflation expectations. Therefore, central banks’ monetary policies that aiming to formulate firms’ inflation perceptions can be a useful tool in regulating their inflation expectations, which are expected to benefit the stability of the macro-economy.http://dx.doi.org/10.1080/1331677X.2021.1958245inflation expectationsfirmheterogeneityinflation perceptionmonetary policy |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Chi Zhang Zhixin Liu Yingying Xu Yinpeng Zhang |
spellingShingle |
Chi Zhang Zhixin Liu Yingying Xu Yinpeng Zhang How do firms form inflation expectations? Empirical evidence from the United States Ekonomska Istraživanja inflation expectations firm heterogeneity inflation perception monetary policy |
author_facet |
Chi Zhang Zhixin Liu Yingying Xu Yinpeng Zhang |
author_sort |
Chi Zhang |
title |
How do firms form inflation expectations? Empirical evidence from the United States |
title_short |
How do firms form inflation expectations? Empirical evidence from the United States |
title_full |
How do firms form inflation expectations? Empirical evidence from the United States |
title_fullStr |
How do firms form inflation expectations? Empirical evidence from the United States |
title_full_unstemmed |
How do firms form inflation expectations? Empirical evidence from the United States |
title_sort |
how do firms form inflation expectations? empirical evidence from the united states |
publisher |
Taylor & Francis Group |
series |
Ekonomska Istraživanja |
issn |
1331-677X 1848-9664 |
publishDate |
2021-07-01 |
description |
Inflation expectations of firms affect their micro-decision-making behaviors and therefore impact the macro-economy. Thus, a deep understanding of how firms form inflation expectations benefits the achievement of central bank’s policy objectives on macro-economic sustainability and development. In this paper, we focus on the inflation expectations of firms from surveys. Specifically, the Naïve Expectation, Adaptive Expectation, Rational Expectation, VAR, and Heterogeneous Static Expectation formation models are adopted to test the models being used by firms to form inflation expectations. Empirically, this paper reveals the heterogeneity between the formation mechanisms of households and firms. Then, empirical results reject the rational expectation hypothesis of firms’ inflation expectations, which means that they are not perfectly rational. Finally, we find that the inflation perception is a non-negligible factor in forming firms’ inflation expectations. Therefore, central banks’ monetary policies that aiming to formulate firms’ inflation perceptions can be a useful tool in regulating their inflation expectations, which are expected to benefit the stability of the macro-economy. |
topic |
inflation expectations firm heterogeneity inflation perception monetary policy |
url |
http://dx.doi.org/10.1080/1331677X.2021.1958245 |
work_keys_str_mv |
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1721197461859467264 |