How Do Firms Form Their Expectations? New Survey Evidence

By Olivier Coibion, Y. Gorodnichenko, Saten Kumar. The American Economic Review, 2018

481 citations recorded by the source corpus.

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. (JEL D22, D83, D84, E31, E52)

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b45e4eed5685b6d7cd8b81d91e47d2c910b1ea91

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Citations in the corpus

Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination (2016, unknown): “90 Angeletos, Collard and Dellas (2015) and Huo and Takayama (2015a) push this research agenda further by seeking to quantify the aforementioned kind of belief fluctuations. These papers share a similar objective, but take rather different approaches. The first one relaxes the assumption of a common”
HOW DOES CONSUMPTION RESPOND TO NEWS ABOUT INFLATION? FIELD EVIDENCE FROM A RANDOMIZED CONTROL TRIAL (2019, background): “at the time were well above those of professionals (Coibion et al. 2018).”
Designing Information Provision Experiments (2020, background): “…to study how households and firms form expectations about inflation (Armantier et al., 2016; Binder and Rodrigue, 2018; Cavallo et al., 2017; Coibion et al., 2021b, 2018, 2020d,e), house prices (Armona et al., 2019; Fuster et al., 2020), interest rates (Coibion et al., 2020a; Link et al.,…”
The Formation of Expectations, Inflation, and the Phillips Curve (2018, background): “Point predictions of an agent are often in line with the central tendencies of his or her subjective probability distribution (e.g., Engelberg et al. 2009; Coibion et al. 2014).”
Monetary Policy Communications and Their Effects on Household Inflation Expectations (2018, unknown): “…in low-inflation countries report beliefs about inflation that are far from anchored, seem unaware of even dramatic monetary policy announcements, and more generally display almost no knowledge of what central banks do (see e.g. Coibion et al. 2018a, D’Acunto et al. 2018a, and Binder 2017).”
Firm performance and macro forecast accuracy (2018, unknown): “The results are consistent with the evidence shown by Coibion et al. (2018) that firms with greater incentives to predict inflation (due to facing higher competition) make more accurate forecasts than others.”
The Impact of Covid-19 on Productivity (2020, unknown): “More generally the survey literature has focused on a range of topics around expectations and prices, for example, Coibion and Gorodnichenko (2012) and Coibion et al. (2018).”
YOLO: Mortality Beliefs and Household Finance Puzzles (2015, unknown): “1These efforts have been applied to the recent housing boom (Soo (2015) and Bricker et al. (2015)), historical asset prices (Greenwood and Shleifer (2014)), or the difficulty implementing monetary policy (Coibion et al. (2015)).”