Firm expectations about production and prices: Facts, determinants, and effects

Abstract

This chapter revisits recent work on firm expectations about firm-specific developments regarding future production and prices. We focus on existing studies based on survey data that provide a direct measure of expectations. First, we provide an overview of existing studies and revisit robust empirical observations for the ifo survey of German firms. This allows us to establish five facts regarding firm expectations and expectation errors. Second, we use the same data set to revisit key results regarding the formation of firm expectations and their effects. Firm expectations react strongly to firm-specific developments, aggregate variables are less important. There is also strong evidence that firm decisions are driven by firm expectations, both in terms of first and second moments.

Publication
Handbook of Economic Expectations, Elsevier, in preparation