Learning Capitalism the Hard Way - Evidence from German Reunification

Thomas Triebs and Justin Tumlinson

No 6260, CESifo Working Paper Series from CESifo

Abstract: We develop a model of firm learning in volatile markets with noisy signals and test its predictions using historical German data. Firms’ forecasts improve with age. We exploit German Reunification as a natural experiment where firms in the East are treated with ignorance about the distribution of market states. As theoretically predicted, Eastern firms forecast worse than Western ones, but this gap gradually closes over the decade following Reunification. The slow convergence stems from differences in expectations rather than market conditions. We find evidence for the model’s predictions that improvements from learning are faster where market signals are noisier.

Keywords: expectation formation; learning; business cycle forecasting; transition dynamics (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Learning Capitalism the Hard Way—Evidence from Germany’s Reunification (2016)
Working Paper: Learning Capitalism The Hard Way: Evidence From Germany's Reunification (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6260

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