Uncertainty and Change: Survey Evidence of Firms’ Subjective Beliefs

Ruediger Bachmann, Kai Carstensen, Stefan Lautenbacher and Martin Schneider

No 16689, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies how managers plan under uncertainty. In a new survey panel on German manufacturing firms, we show that uncertainty reflects change: Planning incorporates higher subjective uncertainty about future sales growth when the firm has just experienced unusual growth, and more so if the experience was negative. At the quarterly frequency, subjective uncertainty closely tracks conditional volatility of shocks: Both exhibit an asymmetric V-shaped relationship with past growth. In the cross section of firms, however, subjective uncertainty differs from conditional volatility: planning in successful firms—either large or fast-growing—reflects lower subjective uncertainty than in unsuccessful firms even when the size of the shocks is the same.

Keywords: Expectation formation; Firms; Measurement; Subjective uncertainty; Survey data (search for similar items in EconPapers)
JEL-codes: C83 D22 E20 E23 (search for similar items in EconPapers)
Date: 2021-11
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