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Anticipatiions of inflation and corporate investment

Banque de France - PARIS - 2018

Low and persistent inflation levels since 2013 have generated concern, in the context of continuous economic slowdown, especially when the monetary policy is subjected to close to zero percent rates. If households and companies lower their inflation expectations, real interest rates will rise and drive them to postpone consuming and investing. Demand is then driven down, lowering inflation in a potential vicious circle. To prevent this deflationary spiral, central banks have lately conducted unorthodox monetary policies. This project aims to identify how anticipating inflation has led companies to evolve these last few years and how unorthodox monetary policies my have had an effect on corporate investment decisions (through a shift in their anticipations regarding inflation)