How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-Scale Business Survey

Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with differences in firms' investment and labor demand.

Keywords: GDP expectations, expectation heterogeneity, firm, ifo business tendency survey

JEL Classification: D840, E320

Suggested Citation: Suggested Citation

Dovern, Jonas and Müller, Lena Sophia and Wohlrabe, Klaus, How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-Scale Business Survey (2020). CESifo Working Paper No. 8179, Available at SSRN: https://ssrn.com/abstract=3564860 or http://dx.doi.org/10.2139/ssrn.3564860