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Firm optimism and pessimism

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  • Bachmann, Rüdiger
  • Elstner, Steffen

Abstract

This paper explores the question of whether firms have systematic expectation biases. Using microdata from the West German manufacturing subset of the IFO Business Climate Survey, we infer quarterly production growth rates at the firm level. We then combine this information with production growth expectations over a quarterly horizon to construct quantitative firm-specific expectation errors. Our findings show that at most one-third of our firms systematically over- or underpredict their production growth one-quarter ahead. Our findings further show that larger and exporting firms tend to have more realistic expectations, while firms with higher leverage are more prone to expectations that are biased towards optimism.

Suggested Citation

  • Bachmann, Rüdiger & Elstner, Steffen, 2015. "Firm optimism and pessimism," European Economic Review, Elsevier, vol. 79(C), pages 297-325.
  • Handle: RePEc:eee:eecrev:v:79:y:2015:i:c:p:297-325
    DOI: 10.1016/j.euroecorev.2015.07.017
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    More about this item

    Keywords

    Survey data; Expectation errors; Expectation biases; Firm data;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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