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Firms' price, cost and activity expectations: evidence from micro data

Boneva, Lena, Cloyne, James, Weale, Martin and Wieladek, Tomasz (2019) Firms' price, cost and activity expectations: evidence from micro data. CFM discussion paper series (CFM-DP2019-05). Centre For Macroeconomics, London School of Economics and Political Science, London, UK.

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Abstract

Firms’ expectations play a central role in modern macroeconomic models, but little is known empirically about how these are formed or whether they matter for economic outcomes. Using a novel panel data set of manufacturing firms’ expectations about prices and wage rates, new orders, employment and unit costs for the United Kingdom, we document a range of stylized facts about the properties of firms’ expectations and their relationship with recent experience. There is wide dispersion of expectations across firms. Expected future price and wage growth are influenced by firm-specific factors but macroeconomic factors also matter. Expectations of employment and new orders are influenced by firm-specific measures of past orders while expected unit costs seem to be influenced more by firm-specific cost pressures and aggregate import prices. After controlling for a wide range of variables we find a significant connection between past expected price and wage increases and their out-turns. But there is also strong evidence that firms’ expectations are clearly not rational.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2019 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HG Finance
JEL classification: C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C23 - Models with Panel Data
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
Date Deposited: 05 Jun 2019 09:27
Last Modified: 14 Nov 2019 00:51
URI: http://eprints.lse.ac.uk/id/eprint/100943

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