Firms' Expectations of New Orders, Employment, Costs and Prices: Evidence from Micro Data

33 Pages Posted: 20 Feb 2018

See all articles by Lena Boneva

Lena Boneva

Bank of England

James Cloyne

University of California, Davis; Bank of England - Monetary Analysis

Martin Weale

King's College London

Tomasz Wieladek

Bank of England

Date Written: February 2018

Abstract

Firms' expectations play a central role in forward-looking macroeconomic models, but little is known empirically about how these are formed or whether they matter. Using a novel panel data set of firms' expectations about new orders, employment, unit costs, prices and wage rates for the United Kingdom, we document a range of stylized facts about the properties of firms' expectations and their relationship with recent pricing decisions. Expected future price and wage growth are influenced by firm-specific and aggregate factors. Price expectations are more correlated with cost and inflation indicators, wage expectations are more correlated with activity indicators. Expectations of new orders are influenced by aggregate conditions, while expected employment and unit costs seem to be influenced more by firm-specific factors. We also provide micro evidence to support the idea that actual price movements are influenced by expected future price movements, although firms' expectations do not seem to be fully rational.

Keywords: Firm expectations, pricing setting, rationality, survey data; inflation expectations

JEL Classification: C23, C26, E31

Suggested Citation

Boneva, Lena and Cloyne, James and Weale, Martin and Wieladek, Tomasz, Firms' Expectations of New Orders, Employment, Costs and Prices: Evidence from Micro Data (February 2018). CEPR Discussion Paper No. DP12722, Available at SSRN: https://ssrn.com/abstract=3126236

Lena Boneva (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

James Cloyne

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Martin Weale

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

Tomasz Wieladek

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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