No firm is an island? How industry conditions shape firms’ expectations

Philippe Andrade, Olivier Coibion, Erwan Gautier and Yuriy Gorodnichenko

Journal of Monetary Economics, 2022, vol. 125, issue C, 40-56

Abstract: Using a survey of French manufacturing firms, we study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions. In response to industry-level shocks that have no aggregate effects, firms’ aggregate expectations respond persistently. This is consistent with “island” models in which firms use the local prices they observe to make inferences about broader aggregate conditions. These patterns are related to observable characteristics of firms and the industries in which they reside. Finally, we extend the analysis to firms’ expectations over their own future price changes and document how these respond to both industry and aggregate variation.

Keywords: Expectations; Rational inattention; Inflation (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: No firm is an island? How industry conditions shape firms’ expectations (2022)
Working Paper: No Firm Is an Island? How Industry Conditions Shape Firms Expectations (2020)
Working Paper: No Firm Is an Island? How Industry Conditions Shape Firms’ Expectations (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:125:y:2022:i:c:p:40-56

DOI: 10.1016/j.jmoneco.2021.05.006

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