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Timo Reinelt
Economist
International Research
Macroeconomics, Monetary economics, Firm dynamics
Profiles: Google Scholar | LinkedIn | Twitter | Personal website
Working Papers
SAFE to Update Inflation Expectations? New Survey Evidence on Euro Area Firms
Working Paper | with Baumann, Fernando, Georgarakos, and Gorodnichenko | May 2024
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.
Tax Thy Neighbor: The Pass-Through of Local Corporate Taxes into Consumer Prices across German Regions
Working Paper | with Dedola and Osbat | December 2023
abstract
We study the pass-through of producer corporate taxes in German municipalities into product-level consumer prices. Leveraging 1,058 changes in local business tax rates of 4,754 firms across municipalities, we find that a one percentage point increase in a producer’s corporate tax rate raises the retail prices of its goods in stores in the rest of Germany on average by 0.4%. This suggests that producers exploit their market power to shield profits from corporate tax changes. Consistent with upstream and downstream double marginalization, pass-through increases in destination-specific product and retailer market shares.
Corporate Debt Maturity Matters for Monetary Policy
2024-30 | with Jungherr, Meier, and Schott | August 2024
abstract
We provide novel empirical evidence that firms’ investment is more responsive to monetary policy when a higher fraction of their debt matures. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt have larger roll-over needs and are therefore more exposed to fluctuations in the real interest rate (roll-over risk). (2.) These firms also have higher default risk and therefore react more strongly to changes in the real burden of outstanding nominal debt (debt overhang). Unconventional monetary policy, which operates through long-term interest rates, has larger effects on debt maturity but smaller effects on output and inflation than conventional monetary policy.
Published Articles (Refereed Journals and Volumes)
Subjective Housing Price Expectations, Falling Natural Rates, and the Optimal Inflation Target
Forthcoming in Journal of Monetary Economics | with Adam, Pfaeuti, and
abstract
U.S. households’ housing price expectations deviate systematically from full-information rational expectations: (i) expectations are updated on average too sluggishly, (ii) expectations initially underreact but subsequently overreact to housing price changes, and (iii) households are overly optimistic (pessimistic) about housing price growth when the price-to-rent ratio is high (low). We show that weak forms of housing price growth extrapolation allow to simultaneously replicate the behavior of housing prices and these deviations from rational expectations as an equilibrium outcome. Embedding housing price growth extrapolation into a sticky price model with a lower-bound constraint on nominal interest rates, we show that lower natural rates of interest increase the volatility of housing prices and thereby the volatility of the natural rate of interest. This exacerbates the relevance of the lower bound constraint and causes Ramsey optimal inflation to increase strongly with a decline in the natural rate of interest.
Monetary Policy, Markup Dispersion, and Aggregate TFP
Review of Economics and Statistics 106(4), 2024, 1,012-1,027 | with Meier
abstract
We study the role of markup dispersion and aggregate TFP for monetary transmission. Empirically, we show that the response of markup dispersion to monetary policy shocks can account for a significant fraction of the aggregate TFP response in the first two years after the shock. Analytically, we show that heterogeneous price rigidity can explain the response of markup dispersion if firms have a precautionary price-setting motive, which is present in common New Keynesian environments. We provide empirical evidence in support of this explanation. Finally, we study the mechanism and its implications in a quantitative model.