Can firms see into the future? Survey evidence from Germany
- This paper presents new evidence on the expectation formation process of firms from a survey of the German manufacturing sector. It focuses on the expectation about their future business conditions, which enters the widely followed economic sentiment index and which is an important determinant of their employment and investment decisions. We find that firms extrapolate their experience too much and make predictable forecasting errors. Moreover, firms do not seem to anticipate the upcoming reversals of business cycle peaks and troughs which causes suboptimal adjustment of investment and employment and affects their inventories and profits. However, the impact on expectation errors decreases with the size and the age of the firm as firms learn to reduce their extrapolation bias over time.
| Author: | Baptiste Massenot, Yuri Pettinicchi |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-451066 |
| URL: | https://ssrn.com/abstract=3071576 |
| Parent Title (English): | SAFE working paper series ; No. 187 |
| Series (Serial Number): | SAFE working paper (187) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2017 |
| Year of first Publication: | 2017 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2017/11/21 |
| Tag: | Expectation Error; Expectation Formation; Experience; Extrapolation; Learning |
| Issue: | November 3, 2017 |
| Page Number: | 33 |
| HeBIS-PPN: | 424242397 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
