The effectiveness of central bank communication depends, among other things, on whether firms revise their decisions when their inflation expectations change.
The paper studies this channel, critically assessing the appropriateness of commonly employed empirical tools; it also proposes alternative empirical tools more in line with the underlying economic theory.
Firms revise their inflation expectations when presented with information about current inflation; however, they do not revise their pricing or hiring decisions.
The absence of a causal relationship between expected inflation and firms' choices is confirmed by analyses based on different estimators.
The results suggest that communication campaigns aimed at improving the general public's awareness of economic phenomena and steer their expectations have hardly any effect on real economic activity.