Firm Expectations and News: Micro v Macro

Benjamin Born, Zeno Enders, Manuel Menkhoff, Gernot J. Müller, Knut Niemann and Gernot Müller
Authors registered in the RePEc Author Service: Gernot J. Müller

No 10192, CESifo Working Paper Series from CESifo

Abstract: In this study, we investigate how firm expectations about their own developments respond to different types of news. We classify news as either micro or macro, with micro news being information about firm-specific developments and macro news being information about the aggregate economy. Our analysis of firm surveys from Germany and Italy shows that both types of news consistently predict forecast errors, contradicting the idea of full-information rational expectations. Yet while firm expectations overreact to micro news, they underreact to macro news. We propose a model in which firms suffer from “island illusion” to explain these patterns in the data.

Keywords: firm expectations; survey; overreaction; underreaction; micro news; macro news; island illusion; business cycle (search for similar items in EconPapers)
JEL-codes: C53 D84 E71 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-bec and nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Firm Expectations and News: Micro v Macro (2023)
Working Paper: Firm expectations and news: Micro v macro (2023)
Working Paper: Firm Expectations and News: Micro v Macro (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10192

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