American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Inflation Expectations and Misallocation of Resources: Evidence from Italy
American Economic Review: Insights
vol. 6,
no. 2, June 2024
(pp. 246–61)
Abstract
Using Italian data that include 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 expectation-induced misallocation is moderate, but we argue that it likely becomes quite significant in times of high inflation.Citation
Ropele, Tiziano, Yuriy Gorodnichenko, and Olivier Coibion. 2024. "Inflation Expectations and Misallocation of Resources: Evidence from Italy." American Economic Review: Insights, 6 (2): 246–61. DOI: 10.1257/aeri.20230201Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D84 Expectations; Speculations
- E31 Price Level; Inflation; Deflation
- E37 Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications