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Looking Inside the Magic 8 Ball : An Analysis of Sales Forecasts using Italian Firm-Level Data



This paper explores firm forecasting strategies. Using Italian data, we focus on two aspects of the forecasting process: how firms forecast sales and how accurate their predictions are. We relate both outcomes to current conditions, firm experience, global factors, and other firm characteristics. We find that current conditions tend to explain most of the variability in the sales forecast. While past projection errors tend to account for cross-firm differences in models of expectation formation, they are a key explanatory variable in models of forecast accuracy. Among other controls, firm size, experience, and global conditions--through the effect of price changes that the firm anticipates--shape firm expectations and influence the projection errors. Our findings suggest that models of sales expectations should take firm characteristics and market heterogeneity into account.

Suggested Citation

  • Maria D. Tito, 2017. "Looking Inside the Magic 8 Ball : An Analysis of Sales Forecasts using Italian Firm-Level Data," Finance and Economics Discussion Series 2017-027, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2017-27
    DOI: 10.17016/FEDS.2017.027

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    References listed on IDEAS

    1. Michael J. Dickstein & Eduardo Morales, 2015. "What do Exporters Know?," NBER Working Papers 21351, National Bureau of Economic Research, Inc.
    2. Winklhofer, Heidi & Diamantopoulos, Adamantios & Witt, Stephen F., 1996. "Forecasting practice: A review of the empirical literature and an agenda for future research," International Journal of Forecasting, Elsevier, vol. 12(2), pages 193-221, June.
    3. Cunha, Flavio & Heckman, James J., 2007. "Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling," Labour Economics, Elsevier, vol. 14(6), pages 870-893, December.
    4. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    5. Diamantopoulos, Adamantios & Winklhofer, Heidi, 1999. "The impact of firm and export characteristics on the accuracy of export sales forecasts: evidence from UK exporters," International Journal of Forecasting, Elsevier, vol. 15(1), pages 67-81, February.
    6. Cheng Chen & Tatsuro Senga & Chang Sun & Hongyong Zhang, 2016. "Policy Uncertainty and Foreign Direct Investment: Evidence from the China-Japan Island Dispute," Working Papers 803, Queen Mary University of London, School of Economics and Finance.
    7. Eduardo Morales & Michael Dickstein, 2015. "What do Exporters Know?," 2015 Meeting Papers 139, Society for Economic Dynamics.
    8. Dalrymple, Douglas J., 1987. "Sales forecasting practices: Results from a United States survey," International Journal of Forecasting, Elsevier, vol. 3(3-4), pages 379-391.
    9. R?diger Bachmann & Steffen Elstner & Eric R. Sims, 2013. "Uncertainty and Economic Activity: Evidence from Business Survey Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 217-249, April.
    10. Michael J. Dickstein & Eduardo Morales, 2015. "What do Exporters Know?," Discussion Papers 15-026, Stanford Institute for Economic Policy Research.
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    More about this item


    Exporting; Forecast Accuracy; Sales Forecasting;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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