Working Paper: NBER ID: w30042
Authors: Bernardo Candia; Olivier Coibion; Yuriy Gorodnichenko
Abstract: Using surveys of firms around the world, we review existing evidence on how firms form their macroeconomic expectations. Several facts stand out. First, the mean inflation forecasts of firms often deviate significantly from those of professional forecasters and households. Second, disagreement about inflation among firms is large. Third, firms often change their short-run and long-run inflation expectations jointly and by similar amounts. Fourth, firms in economies with a history of low and stable inflation are inattentive to inflation and monetary policy, but this is less true in countries with more volatile environments. Fifth, firms form expectations about inflation and the real economy jointly, but the way in which they do can differ widely across countries. Finally, we show that conditioning on firms’ inflation expectations generates a stable Phillips curve relationship. We also review evidence showing that exogenous variation in the macroeconomic expectations of firms affects their decisions.
Keywords: No keywords provided
JEL Codes: E03; E30; E40; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inflation Expectations (E31) | Firm Decisions (D21) |
| Inflation Expectations (E31) | Employment Decisions (M51) |
| Inflation Expectations (E31) | Investment Decisions (G11) |
| Inflation Expectations (E31) | Economic Activity (R11) |