This paper examines the existence of a causal link between the dispersion of firms' inflation expectations and the allocative efficiency of production factors. The empirical analysis uses a modification in the information provided to firms participating in the Survey on Inflation and Growth Expectations by the Bank of Italy, which affects the dispersion of firms' inflation expectations.
The results of the analysis indicate that an increase in the dispersion of inflation expectations reduces the allocative efficiency of production factors, leading to a decline in aggregate production. Communication policies aimed at reducing the degree of dispersion of inflation expectations could, therefore, help to increase efficiency.
Forthcoming in: American Economic Review: Insights.
