Firm expectations and news: micro v macro

Benjamin Born, Zeno Enders, Manuel Menkhoff, Gernot J. Müller, Knut Niemann

Using firm-level data, we study how firm expectations adjust to news while accounting for a) the heterogeneity of news and b) the heterogeneity of firms. We classify news as either micro or macro, that is, information about firm-specific developments or information about the aggregate economy. Survey data for German and Italian firms allows us to reject rational expectations: Both types of news predict forecast errors at the firm level. Yet while firm expectations overreact to micro news, they underreact to macro news. We propose a general-equilibrium model where firms suffer from 'island illusion' to explain these patterns in the data.

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Year of publication:	July 2023
Authors:	Born, Benjamin ; Enders, Zeno ; Menkhoff, Manuel ; Müller, Gernot J. ; Niemann, Knut
Publisher:	Munich, Germany : ifo Institute - Leibniz Institute for Economic Research at the University of Munich
Subject:	Survey data \| salience \| overreaction \| underreaction \| micro news \| macro news \| island illusion \| business cycle \| Ankündigungseffekt \| Announcement effect \| Konjunktur \| Business cycle \| Börsenkurs \| Share price \| Erwartungsbildung \| Expectation formation \| Schock \| Shock \| Schätzung \| Estimation \| Frühindikator \| Leading indicator

Extent:	1 Online-Ressource (circa 74 Seiten) Illustrationen
Series:	Ifo working papers. - Munich : [Verlag nicht ermittelbar], ZDB-ID 2681107-8. - Vol. 400 (2023)
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
Notes:	Erscheint auch als Druck-Ausgabe
Other identifiers:	hdl:10419/275757 [Handle]
Classification:	D84 - Expectations; Speculations ; C53 - Forecasting and Other Model Applications ; e71
Source:	ECONIS - Online Catalogue of the ZBW

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