Working Paper: NBER ID: w21092
Authors: Olivier Coibion; Yuriy Gorodnichenko; Saten Kumar
Abstract: 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.
Keywords: macroeconomic beliefs; expectations formation; rational inattention
JEL Codes: E3; E4; E5; E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms' inattentiveness to macroeconomic information (D89) | Firms' incentives to process information (D83) |
| Firms' information processing capabilities (L15) | Firms' beliefs about inflation (E31) |
| Firms receive new information (D83) | Firms update their beliefs in a Bayesian manner (D83) |
| Nature of the information (D89) | Firms' response (L20) |
| Competitive pressures (L11) | Accuracy of firms' expectations (D84) |
| Firms' inflation forecasts (E31) | Sensitivity to new information (D83) |