Research
Research in progress
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The Asymmetric Role of Own-Industry Expectations in Firm Pricing: Evidence from UK Firms
Abstract
Do firms factor in expectations about prices of their competitors when setting their prices? We exploit unique survey data that asks firms in the United Kingdom on a quarterly basis about the realised and expected price changes for their own prices and the prices of their domestic competitors. We find that, over the period 2009 to 2023, own-price inflation expectations are robustly positively associated with the firm's price changes. Own-price and own-industry expected price changes are often reported to be identical, pointing to inattention to industry-wide inflation. However, when firms expected their competitors' price changes to lie above what they expect for their own price changes, they end up increasing their prices by more. This effect is asymmetric: there is no similar downward price adjustment when the firm expects its competitors' price changes to be lower than their own. Hence, firms have more scope to adjust their prices upward without losing market share if they expect their competitors to do so too. These effects are stronger for larger firms, firms located in major cities, and firms with greater market power, consistent with strategic complementarities being most relevant where competitive exposure is greatest.
Presented at: Kiel University (co-author presented), CFE-CMStatistics (co-author presented), 14th ifo Conference on Macroeconomics and Survey Data (co-author presented)
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Sectoral Phillips Curves: The Role of Expectations and Production Networks in Price Setting — [Latest Draft]
Abstract
I examine price-setting behaviour across 52 sectors in the UK by estimating Sectoral Phillips Curves (SPCs) using heterogeneous panel methods. First, I enhance the identification of the SPC by using a confidential survey dataset on direct measures of firms' expectations, labour costs, and supplier prices; thus alleviating a very common weak identification issue discussed in the literature. Second, I take into account input-output linkages, which are typically overlooked in traditional Phillips Curve estimations. I find significant and positive SPC parameters, reaffirming the importance of future expected inflation in firms' price setting and the key role of sectoral data in identifying the Phillips Curve slope. Also, I find larger slopes when sectoral linkages are taken into account. Third, I uncover substantial heterogeneity across industries in terms of forward- and backward-looking behaviour and cost responsiveness. Delving into potential sources of heterogeneity, expectations play a larger role in the price-setting decisions of firms in more concentrated sectors.
Presented at: CEF 2023, Edinburgh-Nottingham Macro PhD Workshop 2023, ESCoE 2023, IAAE 2023, MMF PhD Conference 2023, Warwick PhD Conference 2023, RES Annual Conference 2024, LACEA-LAMES 2024, SED 2024 Winter Meeting
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The Network Origins of the Post-COVID Inflation
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Exchange-Rate Pass-Through and Strategic Complementarities in Argentine Retail
Working papers
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Replication Report: Market-Based Monetary Policy Uncertainty — [Discussion Paper]
Abstract
This report replicates and examines Bauer et al.'s (2021) paper on monetary policy transmission to financial markets. The paper introduces novel measures of monetary policy uncertainty and analyses its drivers. It also investigates the impact of uncertainty changes on interest rates and financial asset prices. We assess reproducibility, consolidate market uncertainty measures using PCA and Factor Analysis, and rigorously test the reduction of uncertainty after Federal Open Market Committee (FOMC) announcements. Our findings support the paper's claim of reduced uncertainty on meeting days. Additionally, we explore the implications of the uncertainty channel on various financial assets, such as Gold, the Swiss Franc, European stock indexes, and Bitcoin.