Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191667
Authors: 
Buchheim, Lukas
Link, Sebastian
Year of Publication: 
2017
Series/Report no.: 
Munich Discussion Paper 2017-15
Abstract: 
This paper studies a new aspect of firms' expectation formation by asking whether expectations primarily reflect aggregate, industry-wide information (e.g., industry trends) or disaggregate information (e.g., firm-specific information). First, we show that disaggregate information is strongly associated with expectations even when controlling for aggregate information at high-dimensional industry levels. Moreover, aggregate and disaggregate information explain comparable shares of the variance in expectations. Second, we exploit a natural experiment to identify the causal effect of new information on expectations. The predictable demand effects for durable goods due to the German VAT increase of 2007 implied that, at the time, durable goods retailers had access to more reliable information about their future demand than non-durable goods retailers. Utilizing this observation in a difference-in-differences design, we find that "treated" firms were significantly more forward-looking ahead of the VAT-induced demand shifts. Overall, our results suggest that firms rationally incorporate disagreggate information into their expectations.
Subjects: 
Expectation Formation
Firm Behavior
Survey Data
Natural Experiments in Macroeconomics
Heterogeneity in Expectations
JEL: 
D84
D22
E20
E32
E65
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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