The investment, production and saving choices of firms and households are influenced by expected inflation, which determines the perceived real interest rate. The presence of a direct response of inflation expectations to monetary policy shocks would therefore increase the ability of the central bank to stabilize the economic cycle. This study seeks to fill that void by providing evidence based on firms.
Firms' inflation expectations react directly to monetary policy and do so in a way that is coherent with its orientation. The reaction is even stronger in case of unconventional monetary policies, which are explicitly aimed at driving long-term inflation expectations. The revision of expectations is not equally evident when looking at firms' pricing plans, which may be affected by the presence of adjustment costs or alternative channels of monetary policy transmission.
