Firm Expectations and Economic Activity

46 Pages Posted: 9 May 2019

See all articles by Zeno Enders

Zeno Enders

University of Heidelberg

Franziska Huennekes

Ludwig Maximilian University of Munich (LMU)

Gernot J. Müller

University of Tuebingen - Department of Economics

Date Written: 2019

Abstract

We assess how survey expectations impact production and pricing decisions on the basis of a large panel of German firms. We identify the causal effect of expectations by matching firms with the same fundamentals but different views about the future. The probability to raise (lower) production is 15 percentage points higher for optimistic (pessimistic) firms than for neutral firms. Optimistic firms are also more likely to raise prices. In a second step, we find optimism and pessimism to matter even if they turn out to be incorrect ex-post. Lastly, we quantify the contribution of incorrect optimism and pessimism to aggregate fluctuations.  

Keywords: expectations, firms, survey data, propensity score matching, business cycle, news, noise, incorrect optimism

JEL Classification: E320, D840, E710

Suggested Citation

Enders, Zeno and Huennekes, Franziska and Müller, Gernot J., Firm Expectations and Economic Activity (2019). CESifo Working Paper No. 7623. Available at SSRN: https://ssrn.com/abstract=3384314

Zeno Enders (Contact Author)

University of Heidelberg ( email )

Franziska Huennekes

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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