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Timo Reinelt
- 4 July 2024
- THE ECB BLOGFirms’ inflation expectations are key for monetary policy makers. The ECB Blog presents new survey data on these expectations, evidence on what influences them, how they change when new information becomes available, and if they matter for the plans and choices firms make.Details
- JEL Code
- D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
D81 : Microeconomics→Information, Knowledge, and Uncertainty→Criteria for Decision-Making under Risk and Uncertainty
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
- 24 June 2024
- WORKING PAPER SERIES - No. 2949Details
- Abstract
- This paper provides new survey evidence on firms’ inflation expectations in the euro area. Building on the ECB’s Survey on the Access to Finance of Enterprises (SAFE), we introduce consistent measurement of inflation expectations across countries and shed new light on the properties and causal effects of these expectations. We find considerable heterogeneity in firms’ inflation expectations and show that firms disagree about future inflation more than professional forecasters but less than households. We document that differences in firms’ demographics, firms’ choices and constraints, and cross-country macroeconomic environments account for most of the variation in inflation expectations by roughly equal shares. Using an RCT approach, we show that firms update their inflation expectations in a Bayesian manner. Moreover, they revise their plans regarding prices, wages, costs and employment in response to information treatments about current or future inflation.
- JEL Code
- E20 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 16 February 2023
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2023Details
- Abstract
- Using firm-level data from the Survey on the Access to Finance of Enterprises (SAFE), this box investigates whether bond-issuing firms substitute bond issuance with bank loans as bond market conditions deteriorate, and whether this affects bank lending conditions for SMEs that do not rely on bond financing. In the latest round of the SAFE, euro area firms reported a widening of their corporate bond financing gap (the difference between the change in the need for and the change in the availability of corporate bond financing). As bond issuers are typically large firms that rely on multiple sources of finance, their substitution of bond issuance with bank loans could lead to a tightening of bank lending conditions for smaller firms. This box finds evidence that bond-issuing firms substitute bond issuance with bank loans when bond market conditions deteriorate. In addition, there is some indication that as corporate bond financing gaps widen, bank lending conditions deteriorate for SMEs that do not use bond financing.
- JEL Code
- D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 12 January 2023
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 8, 2022Details
- Abstract
- This box looks at the link between firms’ financing conditions and the euro area business cycle. For information on financing conditions of firms, the box uses results from the Survey on the Access to Finance of Enterprises (SAFE). Monetary policy is shown to affect changes in firms’ financing gaps – the difference between the change in demand for and the change in the availability of external financing – as well as their expectations about future availability of finance. At the current juncture, firms report increasing financing gaps and a deterioration in their expectations about the availability of finance in the period ahead. Such responses from firms are associated with stronger concerns about finance at the firm level. Moreover, financing conditions matter for the aggregate business cycle: increasing financing gaps and lower expected availability of finance foreshadow lower GDP growth.
- JEL Code
- D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 13 July 2022
- WORKING PAPER SERIES - No. 2681Details
- Abstract
- We estimate the response of product-level retail prices to changes in the corporate tax rates paid by wholesale producers (pass-through). Under perfect competition in goods and factor markets, pass-through of corporate taxes should be zero, and their incidence mainly falls on factor prices. We use variation in tax rates across time and space in Germany, where municipalities set the local business tax once a year, to provide estimates of tax pass-through into the retail prices of more than 125,000 food and personal care products sold across Germany. By leveraging 1,058 changes in the local business tax rate between 2013 and 2017, we find that a one percentage point tax increase results in a 0.4% increase in the retail prices of goods produced by taxed _rms and purchased by consumers in the rest of Germany, who thus end up bearing a substantial share of the tax burden. This finding suggests that manufacturers may exploit their market power to shield profits from corporate taxes, complicating the analysis of the redistributive effects of tax reforms. We also explore various dimensions of heterogeneity in pass-through related to market power, including producer size, market shares, and retail store types. While producer heterogeneity does not seem to matter, the significant passthrough of corporate taxes to consumer prices in the low inflation period covered by our sample is mostly due to price changes in supermarkets and hypermarkets.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical
H71 : Public Economics→State and Local Government, Intergovernmental Relations→State and Local Taxation, Subsidies, and Revenue
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms
- 27 May 2022
- RESEARCH BULLETIN - No. 95Details
- Abstract
- To what extent are corporate taxes passed on to consumers? And more generally, how do wholesaleproducers affect retail prices? Using data from Germany, where individual municipalities set local corporate taxrates, we shed new light on these questions. To estimate the impact of changes in producers’ tax rates onconsumer prices, we link 1,058 tax changes between 2013 and 2017 to changes in the retail prices of morethan 125,000 food and personal care products sold across Germany. A one percentage point increase in thelocal corporate tax leads on average to a 0.4% increase in the retail price of goods “exported” by the taxedfirms to stores in the rest of Germany. While neither the size of producers nor their market shares seem toaffect the strength of this pass-through, the type of store selling the product does: supermarkets andhypermarkets account for most of the increase in prices. Our findings suggest the following policy-relevantimplications: i) producers use their market power to shield profits from corporate taxes; ii) some retailers passon a large share of wholesale price changes; iii) the low-inflation period from 2013 to 2017 did not impair thepass-through of shocks to consumer prices.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical
H71 : Public Economics→State and Local Government, Intergovernmental Relations→State and Local Taxation, Subsidies, and Revenue
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms - Network
- Price-setting Microdata Analysis Network (PRISMA)
- 26 November 2021
- WORKING PAPER SERIES - No. 2617Details
- Abstract
- Price inflation in the euro area has been stable and low since the Global Financial Crisis, despite notable changes in output and unemployment. We show that an increasing share of high markup firms is part of the explanation of why inflation remained stubbornly stable and low in the euro area over the past two decades. For this purpose, we exploit a rich firm-level database to show that over the period 1995–2018 the aggregate markup in the euro area has been on the rise, mainly on account of a reallocation towards high-markup firms. We document significant heterogeneity in markups across sectors and countries and, by linking these markup developments to the evolution of sectoral level producer and consumer price inflation, we find that (i) inflation in high-markup sectors tends to be less volatile than in low-markup sectors and (ii) inflation in high-markup sectors responds significantly less to oil supply, global demand and euro area monetary policy shocks.
- JEL Code
- D2 : Microeconomics→Production and Organizations
D4 : Microeconomics→Market Structure and Pricing
N1 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations
O3 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights - Network
- Price-setting Microdata Analysis Network (PRISMA)
- 25 June 2020
- WORKING PAPER SERIES - No. 2427Details
- Abstract
- We document three new empirical facts: (i) monetary policy shocks increase the markup dispersion across firms, (ii) they increase the relative markup of firms with stickier prices, and (iii) firms with stickier prices have higher markups. This is consistent with a New Keynesian model in which price rigidity is heterogeneous across firms. In the model, firms with more rigid prices optimally set higher markups and their markups increase by more after monetary policy shocks. The consequent increase in markup dispersion explains a negative aggregate TFP response. In a calibrated model, monetary policy shocks generate substantial fluctuations in aggregate productivity.
- JEL Code
- E30 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→General
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General - Network
- ECB Lamfalussy Fellowship Programme