Giacomo Mangiante (Bank of Italy) - The asymmetric pass-through of input prices to firms’ expectations and decisions

Research seminars

Research Seminar - Giacomo Mangiante (Bank of Italy) - The asymmetric pass-through of input prices to firms’ expectations and decisions

Co-authors: Fiorella De Fiore (BIS) and Marco Jacopo Lombardi (BIS)

Abstract
This paper studies the pass-through of input price shocks to firms’ expectations and pricing decisions. We rely on firm-level data from the Bank of Italy’s Survey on Inflation and Growth Expectations (SIGE) and identify exogenous shocks through forecast errors in firms’ input price expectations. We document a strong and asymmetric passthrough: positive shocks significantly raise firms’ price expectations, realised prices, and short-term inflation expectations, while negative shocks have little effect. The extent of this pass-through varies with macroeconomic conditions and firm characteristics, with firms relying more on aggregate inflation signals in high-inflation environments. Finally, we show that central bank communication, particularly providing firms with information on current inflation, dampens the pass-through to inflation expectations, underscoring the role of transparency in anchoring expectations and stabilizing inflation dynamics.

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