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No Firm is an Island? How Industry Conditions Shape Firms' Aggregate Expectations / Philippe Andrade, Olivier Coibion, Erwan Gautier, Yuriy Gorodnichenko.
- Format:
- Book
- Author/Creator:
- Andrade, Philippe.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w27317.
- NBER working paper series no. w27317
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We study how firms' expectations and actions are affected by both aggregate and industry-specific conditions using a survey of French manufacturing firms. We document two novel features. First, the adjustment of firms' expectations is more rapid after industry-specific shocks than aggregate shocks. This is consistent with rational inattention models which predict that firms should pay more attention to industry variation than aggregate conditions. Second, in response to industry shocks that have no aggregate effects, firms' aggregate expectations respond. This is consistent with "island" models in which firms use the specific prices they observe to make inferences about broader aggregate conditions. We also study how these results vary across industries.
- Notes:
- Print version record
- June 2020.
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