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Firms' Price, Cost and Activity Expectations: Evidence from Micro Data

Author

Listed:
  • Lena Boneva
  • James Cloyne
  • Martin Weale
  • Tomasz Wieladek

Abstract

Firms' expectations play a central role in modern macroeconomic models, but little is known empirically about them. Using panel data on manufacturing firms' expectations about prices and wage rates, new orders, employment and unit costs for the United Kingdom, we document a range of stylised facts about firms' expectations and their determinants. There is wide dispersion of expectations across firms. Firms' expectations are influenced by both firm-specific factors and macroeconomic factors. We find a significant connection between past expected price and wage increases and their out-turns. Firms' expectations are, however, clearly not rational.

Suggested Citation

  • Lena Boneva & James Cloyne & Martin Weale & Tomasz Wieladek, 2020. "Firms' Price, Cost and Activity Expectations: Evidence from Micro Data," The Economic Journal, Royal Economic Society, vol. 130(627), pages 555-586.
    • Handle: RePEc:oup:econjl:v:130:y:2020:i:627:p:555-586.
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    File URL: http://hdl.handle.net/10.1093/ej/uez059
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    Cited by:

    1. Anja Sebbesen & Harald Oberhofer, 2024. "The propagation of business expectations within the European Union," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(6), pages 1082-1103, September.
    2. Kevin Lee & Michael Mahony & Paul Mizen, 2020. "The CBI Suite of Business Surveys," Economic Statistics Centre of Excellence (ESCoE) Technical Reports ESCOE-TR-08, Economic Statistics Centre of Excellence (ESCoE).
    3. Ursel Baumann & Annalisa Ferrando & Dimitris Georgarakos & Yuriy Gorodnichenko & Timo Reinelt, 2024. "SAFE to Update Inflation Expectations? New Survey Evidence on Euro Area Firms," NBER Working Papers 32504, National Bureau of Economic Research, Inc.
    4. Chan, Jenny, 2024. "Monetary policy and sentiment-driven fluctuations," Journal of Economic Theory, Elsevier, vol. 222(C).
    5. Frédérique Savignac & Erwan Gautier & Yuriy Gorodnichenko & Olivier Coibion, 2024. "Firms’ Inflation Expectations: New Evidence from France," Journal of the European Economic Association, European Economic Association, vol. 22(6), pages 2748-2781.
    6. Brancati,Emanuele-000592383 & Di Maio,Michele & Rahman,Aminur, 2022. "Jobs, Access to Credit, and Informality in MENA Countries," Policy Research Working Paper Series 10061, The World Bank.
    7. Di Pace, Federico & Mangiante, Giacomo & Masolo, Riccardo M., 2025. "Do firm expectations respond to monetary policy announcements?," Journal of Monetary Economics, Elsevier, vol. 149(C).
    8. Giovanni Dosi & Mauro Napoletano & Andrea Roventini & Joseph E. Stiglitz & Tania Treibich, 2020. "Rational Heuristics? Expectations And Behaviors In Evolving Economies With Heterogeneous Interacting Agents," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1487-1516, July.
    9. Bizet, Romain & Bonev, Petyo & Leveque, Francois, 2020. "The effect of local monitoring on nuclear safety and compliance: Evidence from France," Economics Working Paper Series 2014, University of St. Gallen, School of Economics and Political Science.
    10. Zeno Enders & Franziska Hünnekes & Gernot Müller, 2022. "Firm Expectations and Economic Activity," Journal of the European Economic Association, European Economic Association, vol. 20(6), pages 2396-2439.
    11. Jenny Chan, 2024. "Monetary policy and sentiment-driven fluctuations," Bank of England working papers 1106, Bank of England.
    12. Chen, Cheng & Senga, Tatsuro & Sun, Chang & Zhang, Hongyong, 2023. "Uncertainty, imperfect information, and expectation formation over the firm’s life cycle," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 60-77.
    13. Sarah Brown & Mark N. Harris & Christopher Spencer & Karl Taylor, 2024. "Financial Expectations and Household Consumption: Does Middle‐Inflation Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(4), pages 741-768, June.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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