Working Paper: NBER ID: w29430
Authors: Ruediger 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: uncertainty; firm behavior; subjective beliefs; sales growth; survey evidence
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 |
|---|---|
| Unusual growth (O40) | Subjective uncertainty (D80) |
| Unusual growth (O40) | Firms' planning (L21) |
| Successful firms (L25) | Spans of uncertainty (C41) |
| Turbulence in sales growth (E32) | Subjective uncertainty (D80) |
| Subjective uncertainty (D80) | Subjective uncertainty (D80) |