Firm Inflation Expectations and Monetary Policy in Uruguay

Produced by: 
Banco Central del Uruguay
Available from: 
December 2014
Paper author(s): 
Gerardo Licandro
Miguel Mello
Topic: 
Financial Economics
Macroeconomics - Economic growth - Monetary Policy
Year: 
2015

Using a novel monthly survey of firm inflation expectations for Uruguay from October 2009 to June 2013, this paper studies the impact of monetary policy on inflation expectations at the micro level. Using several panel data techniques we consistently find a negative and statistically significant relationship between monetary policy and inflation expectations. We also find a high level of inertia in expectations. Past inflation changes have a positive impact on inflation expectations, while exchange rate changes have a significant but low importance on expectations. We observe a negative link between inflation expectations and expected economic activity, potentially due to past experiences of a monetary financing of crisis. Contrary to intuition, there is no clear link between firm inflation expectations and the median assessment of experts published by the Central Bank.

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