Learning to Forecast the Hard Way—Evidence from German Reunification

42 Pages Posted: 12 Jul 2013 Last revised: 28 Jun 2023

See all articles by Thomas Triebs

Thomas Triebs

Loughborough University - School of Business and Economics

Justin Tumlinson

University of Exeter Business School

Date Written: July 2013

Abstract

Do firms learn to forecast future business conditions after structural changes to the economy? How long does it take? We exploit German Reunification as a natural experiment, where Eastern are treated with ignorance about the distribution of market states, to test Bayesian learning. As predicted, Eastern firms initially forecast future business conditions worse than Western ones, but this gap gradually closes over a decade following Reunification. The slow convergence stems from differences in forward expectations rather than realized market conditions. These results warn of costly and drawn out adjustments to regime changes, as the trade wars, COVID19 and Brexit.

Suggested Citation

Triebs, Thomas and Tumlinson, Justin, Learning to Forecast the Hard Way—Evidence from German Reunification (July 2013). NBER Working Paper No. w19209, Available at SSRN: https://ssrn.com/abstract=2292830

Thomas Triebs (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

Justin Tumlinson

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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