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No firm is an island? How industry conditions shape firms’ expectations

Year: 2021

Type: article

Abstract: Using a survey of French manufacturing firms, we study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions. In response to industry-level shocks that have no aggregate effects, firms’ aggregate expectations respond persistently. This is consistent with “island” models in which firms use the local prices they observe to make inferences about broader aggregate conditions. These patterns are related to observable characteristics of firms and the industries in which they reside. Finally, we extend the analysis to firms’ expectations over their own future price changes and document how these respond to both industry and aggregate variation.

Source: Journal of Monetary Economics

DOI: 10.1016/j.jmoneco.2021.05.006

Authors: Philippe Andrade, Olivier Coibion, Erwan Gautier, Yuriy Gorodnichenko

Institutions: Federal Reserve Bank of Boston, The University of Texas at Austin, Banque de France, National Bureau of Economic Research

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $2,890