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How Do Firms Form Their Expectations? New Survey Evidence

Olivier Coibion, Yuriy Gorodnichenko and Saten Kumar

No 21092, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We implement a new survey of firms’ macroeconomic beliefs in New Zealand and document a number of novel stylized facts from this survey. Despite nearly twenty-five years under an inflation targeting regime, there is widespread dispersion in firms’ beliefs about both past and future macroeconomic conditions, especially inflation, with average beliefs about recent and past inflation being much higher than those of professional forecasters. Much of the dispersion in beliefs can be explained by firms’ incentives to collect and process information, i.e. rational inattention motives. Using experimental methods, we find that firms update their beliefs in a Bayesian manner when presented with new information about the economy. But few firms seem to think that inflation is important to their business decisions and therefore they tend to devote few resources to collecting and processing information about inflation.

JEL-codes: E3 E4 E5 E6 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-mac
Note: EFG ME
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Published as Olivier Coibion & Yuriy Gorodnichenko & Saten Kumar, 2018. "How Do Firms Form Their Expectations? New Survey Evidence," American Economic Review, vol 108(9), pages 2671-2713.

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Journal Article: How Do Firms Form Their Expectations? New Survey Evidence (2018) Downloads
Working Paper: HOW DO FIRMS FORM THEIR EXPECTATIONS? NEW SURVEY EVIDENCE (2016) Downloads
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