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Expectations and firm dynamics: Aggregate versus idiosyncratic shocks in emerging economies

Author

Listed:
  • Marcelo E. A. Silva

    (Universidade Federal de Pernambuco)

  • Rafael Vasconcelos

    (Universidade Federal de Pernambuco)

  • Paulo Vaz

    (Universidade Federal de Pernambuco)

Abstract

This paper assesses producer-expectation-driven fluctuations at the firm level in an emerging economy, disentangling three types of expectation shocks. Using unique microdata on expectations and firm decisions, it shows expectation shocks influence output, employment, and investment at the firm level like that usually associated with aggregate business cycles, indicating a widespread market reaction to this type of shock. It also shows that the intensity of those effects varies depending on the nature of the shock. While output and employment responses are larger to idiosyncratic expectation shocks, investment, on the other hand, is more sensitive to expectation shocks associated with the aggregate economy. Survey-based monitoring and policy interventions to anchor producers' expectations in environments plagued by great uncertainty should be aware of such heterogeneity.

Suggested Citation

  • Marcelo E. A. Silva & Rafael Vasconcelos & Paulo Vaz, 2022. "Expectations and firm dynamics: Aggregate versus idiosyncratic shocks in emerging economies," Economics Bulletin, AccessEcon, vol. 42(3), pages 1370-1380.
    • Handle: RePEc:ebl:ecbull:eb-22-00328
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    More about this item

    Keywords

    Firm Dynamics; Producers Confidence; Expectation; Panel VAR Models.;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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