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How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-scale Business Survey

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  • Dovern, Jonas
  • Müller, Lena Sophia
  • Wohlrabe, Klaus

Abstract

Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with di erences in firms' Investment and labor demand.

Suggested Citation

  • Dovern, Jonas & Müller, Lena Sophia & Wohlrabe, Klaus, 2020. "How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-scale Business Survey," Working Papers 15, German Research Foundation's Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour", Humboldt University Berlin.
    • Handle: RePEc:zbw:pp1859:15
    DOI: 10.18452/21402
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    Cited by:

    1. Link, Sebastian & Peichl, Andreas & Roth, Christopher & Wohlfart, Johannes, 2023. "Information frictions among firms and households," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 99-115.
    2. Monique B. Reid & Pierre L. Siklos, 2022. "How Firms and Experts View The Phillips Curve: Evidence from Individual and Aggregate Data from South Africa," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(12), pages 3355-3376, September.
    3. Andrade, Philippe & Coibion, Olivier & Gautier, Erwan & Gorodnichenko, Yuriy, 2022. "No firm is an island? How industry conditions shape firms’ expectations," Journal of Monetary Economics, Elsevier, vol. 125(C), pages 40-56.
    4. Demmelhuber Katrin & Sauer Stefan & Wohlrabe Klaus, 2023. "Beyond the Business Climate: Supplementary Questions in the ifo Business Survey," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 243(2), pages 169-182, April.
    5. Suss, Joel & Hughes, Adam, 2023. "Bank expectations and prudential outcomes," Bank of England working papers 1035, Bank of England.
    6. Philippe Andrade & Olivier Coibion & Erwan Gautier & Yuriy Gorodnichenko, 2020. "No Firm is an Island? How Industry Conditions Shape Firms' Aggregate Expectations," NBER Working Papers 27317, National Bureau of Economic Research, Inc.
    7. Buchheim, Lukas & Dovern, Jonas & Krolage, Carla & Link, Sebastian, 2020. "Firm-level Expectations and Behavior in Response to the COVID-19 Crisis," IZA Discussion Papers 13253, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    GDP expectations; expectation heterogeneity; firm; ifo business tendency survey;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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