Firms use supply chains to predict inflation – IMF paper
Authors find expectation formation diverges from rational expectations hypothesis
Firms tend to build up their inflation expectations by extrapolating from prices they observe in their own supply chains, research published by the International Monetary Fund finds.
In the working paper, Inflation expectations and the supply chain, authors Elías Albagli, Francesco Grigoli and Emiliano Luttini take advantage of a “unique dataset” of Chilean firms’ expectations and records from customs registries.
They find that, in contrast to the rational expectations hypothesis, firms base
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