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  5. How Do Firms Form Their Expectations? New Survey Evidence

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

How Do Firms Form Their Expectations? New Survey Evidence

  • Olivier Coibion
  • Yuriy Gorodnichenko
  • Saten Kumar
American Economic Review
vol. 108, no. 9, September 2018
(pp. 2671–2713)
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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.

Citation

Coibion, Olivier, Yuriy Gorodnichenko, and Saten Kumar. 2018. "How Do Firms Form Their Expectations? New Survey Evidence." American Economic Review, 108 (9): 2671–2713. DOI: 10.1257/aer.20151299

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • D84 Expectations; Speculations
  • E31 Price Level; Inflation; Deflation
  • E52 Monetary Policy