How Do Firms Form Their Expectations? New Survey Evidence / Olivier Coibion, Yuriy Gorodnichenko, Saten Kumar.

Format:

Book

Author/Creator:

Coibion, Olivier.

Contributor:

National Bureau of Economic Research.

Gorodnichenko, Yuriy.

Kumar, Saten.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21092.

NBER working paper series no. w21092

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

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

Notes:

Print version record

April 2015.