Working Paper: NBER ID: w31190
Authors: Tiziano Ropele; Yuriy Gorodnichenko; Olivier Coibion
Abstract: Using Italian data that includes both inflation forecasts of firms and external information on their balance sheets, we study the causal effect of changes in the dispersion of beliefs about future inflation on the misallocation of resources. We find that as disagreement increases, so does misallocation. In times of low inflation, the aggregate TFP loss of the dispersed expectations-induced misallocation is low, but we argue that it likely becomes quite significant in times of high inflation.
Keywords: Inflation expectations; Resource misallocation; Causal evidence; Italy
JEL Codes: E3; E5; E7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased disagreement in inflation expectations (E31) | greater misallocation of resources (D61) |
| higher dispersion in inflation forecasts (E31) | greater dispersion in marginal products of capital and labor (D29) |
| randomized information treatment in SIGE (C90) | exogenous variation in inflation expectations (E31) |