This paper analyzes how an 'information treatment' administered in the Inflation and Growth Expectations Survey, which consists of communicating the ECB's inflation target to a subset of the participating firms, affects their inflation expectations relative to the control group formed by those firms that did not receive this information. It also investigates the quantitative perception that companies have of the ECB's objective, whose formulation - an inflation rate 'below, but close to, 2 per cent' - leaves space for heterogeneous interpretations.
The inflation expectations of firms to which the ECB's target is communicated are on average about 25 basis points higher than those of the control group formed by companies that did not receive this information. Most firms interpret the statement 'below, but close to, 2 per cent' as equivalent to an inflation rate between 1.0 and 1.5 per cent, only a few between 1.7 and 1.9 per cent. Overall, the information on the target stabilizes firms' inflation expectations, but reduces their correspondence with inflation observed ex post, especially on short-term horizons.
Published in: Journal of Monetary Economics, v. 129, Supplement, pp. S15-S34
