Can Firms see into the Future? Survey evidence from Germany
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Datum
2017-11-03
Autor
Massenot, Baptiste
Pettinicchi, Yuri
SAFE No.
187
Metadata
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Zusammenfassung
This paper presents new evidence on the expectation formation process of firms from a survey of the German manufacturing sector. It focuses on the expectation about their future business conditions, which enters the widely followed economic sentiment index and which is an important determinant of their employment and investment decisions. We find that firms extrapolate their experience too much and make predictable forecasting errors. Moreover, firms do not seem to anticipate the upcoming reversals of business cycle peaks and troughs which causes suboptimal adjustment of investment and employment and affects their inventories and profits. However, the impact on expectation errors decreases with the size and the age of the firm as firms learn to reduce their extrapolation bias over time.
Forschungsbereich
Macro Finance
Schlagworte
expectation formation, expectation error, learning, extrapolation, experience
JEL-Klassifizierung
D90, E70
Forschungsdaten
Thema
Fiscal Stability
Corporate Finance
Saving and Borrowing
Corporate Finance
Saving and Borrowing
Beziehungen
1
Publikationstyp
Working Paper
Link zur Publikation
Collections
- LIF-SAFE Working Papers [334]