Information Frictions among Firms and Households
94 Pages Posted: 6 Jan 2021 Last revised: 21 Mar 2021
Date Written: November 30, 2020
We leverage survey data from Germany, Italy, and the US to document several novel
stylized facts about the extent of information frictions among firms and households.
First, firms’ expectations about the central bank policy rate, inflation, and aggregate
unemployment are more aligned with expert forecasts and less dispersed than households’. Second, there is substantially more heterogeneity in information frictions
within households than within firms. Third, consistent with firms having stronger
priors, they update their policy rate expectations significantly less compared to households when provided with an expert forecast. Our results have important implications for modeling heterogeneity in macroeconomic models.
Keywords: Information frictions, firms, households, expectation formation, interest rates
JEL Classification: D83, D84, E71
Suggested Citation: Suggested Citation