Working Paper: CEPR ID: DP16689
Authors: Rüdiger Bachmann; Kai Carstensen; Stefan Lautenbacher; Martin Schneider
Abstract: This paper studies how managers plan under uncertainty. In a new survey panel on German manufacturing firms, we show that uncertainty reflects change: Planning incorporates higher subjective uncertainty about future sales growth when the firm has just experienced unusual growth, and more so if the experience was negative. At the quarterly frequency, subjective uncertainty closely tracks conditional volatility of shocks: Both exhibit an asymmetric V-shaped relationship with past growth. In the cross section of firms, however, subjective uncertainty differs from conditional volatility: planning in successful firms—either large or fast-growing—reflects lower subjective uncertainty than in unsuccessful firms even when the size of the shocks is the same.
Keywords: Expectation formation; Firms; Measurement; Subjective uncertainty; Survey data
JEL Codes: C83; D22; E20; E23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| managerial planning (L21) | subjective uncertainty (D80) |
| negative growth (F69) | subjective uncertainty (D80) |
| positive growth (O49) | subjective uncertainty (D80) |
| successful firms (L25) | subjective uncertainty (D80) |
| subjective uncertainty (D80) | managerial planning (L21) |