HOW DO FIRMS FORM THEIR EXPECTATIONS? NEW SURVEY EVIDENCE

Yuriy Gorodnichenko, Saten Kumar and Olivier Coibion

No 1340, 2016 Meeting Papers from Society for Economic Dynamics

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 most important to their business decisions and therefore they tend to devote few resources to collecting and processing information about inflation.

Date: 2016
New Economics Papers: this item is included in nep-mac and nep-mon
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Related works:
Journal Article: How Do Firms Form Their Expectations? New Survey Evidence (2018)
Working Paper: How Do Firms Form Their Expectations? New Survey Evidence (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1340

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