Firm expectations and economic activity
We assess how firm expectations about future production impact current production and pricing decisions. Our analysis is based on a large survey of firms in the German manufacturing sector. To identify the causal effect of expectations, we rely on the timing of survey responses and match firms with...
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| Main Authors: | , , |
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| Format: | Book/Monograph Working Paper |
| Language: | English |
| Published: |
Frankfurt am Main, Germany
European Central Bank
[2021]
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| Series: | Working paper series / European Central Bank
no 2621 (December 2021) |
| In: |
Working paper series (no 2621 (December 2021))
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| DOI: | 10.2866/15826 |
| Subjects: | |
| Online Access: | Verlag, kostenfrei: https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2621~60d3f25350.en.pdf Resolving-System, kostenfrei: https://doi.org/10.2866/15826 Resolving-System, kostenfrei: http://hdl.handle.net/10419/249894 
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| Author Notes: | Zeno Enders, Franziska Hünnekes, Gernot J. Müller |
| Summary: | We assess how firm expectations about future production impact current production and pricing decisions. Our analysis is based on a large survey of firms in the German manufacturing sector. To identify the causal effect of expectations, we rely on the timing of survey responses and match firms with the same fundamentals but different views about the future. Firms that expect their production to increase (decrease) in the future are 15 percentage points more (less) likely to raise current production and prices, compared to firms that expect no change in production. In a second step, we show that expectations also matter even if they turn out to be incorrect. Lastly, we aggregate expectation errors across firms and find that they account for about 15 percent of aggregate fluctuations. |
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| Physical Description: | Online Resource |
| ISBN: | 9789289949088 |
| DOI: | 10.2866/15826 |