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American Economic Review Vol. 108 No. 9 2018

How Do Firms Form Their Expectations? New Survey Evidence

Olivier Coibion1; Yuriy Gorodnichenko2; Saten Kumar3

1 Department of Economics, University of Texas, 2225 Speedway, BRB 1.116, C3100, Austin, TX 78712 (email: ) · 2 Department of Economics, 530 Evans Hall #3880, University of California, Berkeley, CA 94720 (email: ) · 3 Private Mail Bag 92006, Auckland 1142, New Zealand (email: )

Abstract

We survey New Zealand firms and document novel facts about their macroeconomic beliefs. There is widespread dispersion in beliefs about past and future macroeconomic conditions, especially inflation. This dispersion in beliefs is consistent with firms’ incentives to collect and process information. Using experimental methods, we find that firms update their beliefs in a Bayesian manner when presented with new information about the economy and that changes in their beliefs affect their decisions. Inflation is not generally perceived as being important to business decisions so firms devote few resources to collecting and processing information about inflation.

DOI
10.1257/aer.20151299
Volume
108
Issue
9
Pages
2671-2713
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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