Firm expectations and economic activity

Zeno Enders, Franziska Hünnekes and Gernot Müller

No 7623, CESifo Working Paper Series from CESifo

Abstract: We assess how survey expectations impact production and pricing decisions on the basis of a large panel of German firms. We identify the causal effect of expectations by matching firms with the same fundamentals but different views about the future. The probability to raise (lower) production is 15 percentage points higher for optimistic (pessimistic) firms than for neutral firms. Optimistic firms are also more likely to raise prices. In a second step, we find optimism and pessimism to matter even if they turn out to be incorrect ex-post. Lastly, we quantify the contribution of incorrect optimism and pessimism to aggregate fluctuations.

Keywords: expectations; firms; survey data; propensity score matching; business cycle; news; noise; incorrect optimism (search for similar items in EconPapers)
JEL-codes: D84 E32 E71 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eur and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Firm Expectations and Economic Activity (2022)
Working Paper: Firm expectations and economic activity (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7623

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