AEA RCT Registry

Trial Information

General Information

Title

Inflation Expectations: Firm-Level Experiments

RCT ID

AEARCTR-0008831

Initial registration date

January 23, 2022

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published

January 24, 2022, 9:32 AM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country

Italy

Region

Primary Investigator

Name

Francesco D'Acunto

Affiliation

Boston College

Contact Primary Investigator

Other Primary Investigator(s)

PI Name

Klaus Adam

PI Affiliation

University of Mannheim

Contact Investigator

PI Name

Ester Faia

PI Affiliation

Goethe University Frankfurt

Contact Investigator

PI Name

Michael Weber

PI Affiliation

University of Chicago

Contact Investigator

Additional Trial Information

Status

In development

Start date

2022-01-26

End date

2022-12-31

Keywords

Behavior, Finance & Microfinance, Firms & Productivity, Labor

Additional Keywords

Inflation Expectations, Price Setting Behavior, Consumers, Competition, Workforce, Inflation-Wage Spirals, Corporate Investment

JEL code(s)

C93, D22, E31, G31, J51, L11

Secondary IDs

Prior work

This trial does not extend or rely on any prior RCTs.

Abstract

In this project, we aim to provide a comprehensive causal assessment of the role of four theoretically-motivated forces that might contribute to the formation of firms' inflation expectations (the importance of firms’ inflation expectations has been highlighted for other items, such as sales prospects, also in recent work by Bachmann, Carstensesn, Lautenbacher and Schneider 2020). We will assess the potential role of each of these four channels as well as their relative importance through the design of an information-provision survey experiment. The four channels are suppliers' pricing strategies, customers' inflation expectations, competitors' inflation expectations, and workers' inflation expectations. Suppliers' pricing strategies might matter to firm as they influence firms' own inflation expectations for intermediate goods they use in their production activities. Customers' inflation expectations, especially for firms that engage with end-consumers, matter in that firms' pricing strategies might be more or less aggressive based on whether consumers expect higher prices to begin with or not, and hence react differently to the same price increase. Competitors' and workers' inflation expectations might change firms' expected competitive pressure and expected cost of operations going forward, which are crucial inputs to production.

External Link(s)

Registration Citation

Citation

Adam, Klaus et al. 2022. "Inflation Expectations: Firm-Level Experiments." AEA RCT Registry. January 24. https://doi.org/10.1257/rct.8831-1.0

Sponsors & Partners

Experimental Details

Interventions

Intervention(s)

We aim at a causal inference of firms’ inflation expectations through a survey experiment. Specifically, we wish to test three possible channels that may affect firms’ inflation expectations. The first is the cost channel. This includes the cost of labour, which is likely to raise in the post-pandemic scenario also due to reduced labour supply, and the ensuing raise in unions' power. On reverse instead automation may help firms reduce the cost of labour, hence tame inflation. The second is linked to the role of competitors, as firms have more flexibility in raising prices in less competitive environments. In turn firms themselves form their inflation expectations based on what their expectations of competitors' pricing strategies. The third is the role of consumers’ demand: firms setting prices, do so by taking demand elasticity as given. Most often they refrain from raising prices when they fear consumers’ antagonism.

Intervention Start Date

2022-02-01

Intervention End Date

2022-07-31

Primary Outcomes

Primary Outcomes (end points)

Firm's 12-month-ahead general inflation numerical expectations
Firm's expectations of price adjustments in the 1, 3, 6, and 12 months following the interview
Firm's qualitative beliefs about whether competitors, customers, unions' expectations are relevant to price setting decisions

Primary Outcomes (explanation)

Firm's 12-month-ahead general inflation numerical expectations: they will be constructed by asking subjects for a numerical point estimate for general inflation in their country (Italy) over the 12 months after the date of the interview

Firm's expectations of price adjustments in the 1, 3, 6, and 12 months following the intervention: they will be asked by asking subjects to report the expected price level for their main product/line of products 1, 3, 6, and 12 months after the interview

Firm's qualitative beliefs about whether competitors, customers, unions' expectations are relevant to price setting decisions: they will be constructed by asking subjects, for each of the three dimensions, to rank their important in their firms' price-setting decisions on a Likert scale from 0 to 5.

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

The trial is an experimental survey of a representative set of Italian firms that consists of three parts. The design only includes one level of information treatment with 5 experimental arms (control group plus four treatment arms). Firms will be randomly allocated to one of the 5 experimental arms before starting the experiment through a computerized random number generator. Interviews will be conducted via phone by professional interviewers.

In the first part of the experiment, we elicit information about the price setting strategies of the respondent's firm, their production and investment activities, as well as priors about macroeconomic variables, such as general inflation, oil prices, and other energy prices.

The second part consists of experimental information treatments. Each of 5 random groups of respondents will be read a short paragraph (3 lines) indicating the recent increases and expected increases of the prices of elements that extant economic theory indicates as non-mutually exclusive potential determinants of price setting behavior: energy prices, consumer prices, competitors' prices, and wages (labor prices). The fifth group (control group) will be read a similar-length paragraph about the limited liability of corporations.

The third part of the experiment consists on eliciting firms' posteriors about macroeconomic variables, expectations about their firms' products expected prices at various horizons, and opinions about the importance of each of the channels for which the experimental stage provides information.

Experimental Design Details

The trial is an experimental survey of a representative set of Italian firms that consists of three parts. The design only includes one level of information treatment with 5 experimental arms (control group plus four treatment arms). Firms will be randomly allocated to one of the 5 experimental arms before starting the experiment through a computerized random number generator. Interviews will be conducted via phone by professional interviewers.

In the first part of the experiment, we elicit information about the price setting strategies of the respondent's firm, their production and investment activities, as well as priors about macroeconomic variables, such as general inflation, oil prices, and other energy prices. Elicitations are conducted by asking respondents for point estimates (quantitative beliefs) and qualitative assessments (qualitative beliefs) of each of these dimensions, which might be specific to their firms or about general macroeconomic conditions.

The second part consists of experimental information treatments. Each of 5 random groups of respondents will be read a short paragraph (3 lines) indicating the recent increases and expected increases of the prices of elements that extant economic theory indicates as non-mutually exclusive potential determinants of price setting behavior: energy prices, consumer prices, competitors' prices, and wages (labor prices). For each of the information treatments, we report three piece of information---price increase over the 10 years prior to the interview; price increase over the "few months" before the interview (we cannot pin down the same number of months within the year for all dimensions because the frequency of official data release varies across dimensions); and official forecasts based on public sources. The fifth group (control group) will be read a similar-length paragraph about the limited liability of corporations. All the information reported in the information treatments is truthful and retraceable from documented sources by experiment participants as well as any researcher interested in the experimental design.

The third part of the experiment consists on eliciting firms' posteriors about macroeconomic variables, expectations about their firms' products expected prices at various horizons, and opinions about the importance of each of the channels for which the experimental stage provides information. Even in this case, we will elicit both quantitative beliefs through point estimates and well as qualitative beliefs.

Randomization Method

Randomization will be done through a random number generator by a computer on a list of representative Italian firms based on which professional interviewers will make phone calls.

Randomization Unit

The level of randomization is the firm.

Was the treatment clustered?

No

Experiment Characteristics

Sample size: planned number of clusters

2500 firms

Sample size: planned number of observations

2500 firms

Sample size (or number of clusters) by treatment arms

500 firms for each treatment arm (control group plus four information-treatment arms)

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

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IRB

Institutional Review Boards (IRBs)

IRB Name

Ethics Committe at Goethe-Universitaet Frankfurt

IRB Approval Date

2021-10-25

IRB Approval Number

N/A

Analysis Plan

Inflation Expectations: Firm-Level Experiments

Pre-Trial

General Information

Locations

Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Registration Citation

Interventions

Primary Outcomes

Secondary Outcomes

Experimental Design

Experiment Characteristics

Institutional Review Boards (IRBs)

Post-Trial

Study Withdrawal

Intervention

Data Publication

Program Files

Relevant Paper(s)

Reports & Other Materials