How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-Scale Business Survey

30 Pages Posted: 31 Mar 2020

See all articles by Jonas Dovern

Jonas Dovern

Friedrich-Alexander University

Lena Sophia Müller

Friedrich-Alexander University

Klaus Wohlrabe

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: 2020

Abstract

Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with differences in firms' investment and labor demand.

Keywords: GDP expectations, expectation heterogeneity, firm, ifo business tendency survey

JEL Classification: D840, E320

Suggested Citation

Dovern, Jonas and Müller, Lena Sophia and Wohlrabe, Klaus, How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-Scale Business Survey (2020). CESifo Working Paper No. 8179, Available at SSRN: https://ssrn.com/abstract=3564860 or http://dx.doi.org/10.2139/ssrn.3564860

Jonas Dovern (Contact Author)

Friedrich-Alexander University ( email )

Erlangen-Nuremberg
Germany

Lena Sophia Müller

Friedrich-Alexander University ( email )

Erlangen-Nuremberg
Germany

Klaus Wohlrabe

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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