Macroeconomics Seminar Series. "Firm Expectations and News: Micro v Macro"
Published: 11 October 2024
28 November 2024. Professor Benjamin Born, Frankfurt School of Finance & Management
Professor Benjamin Born, Frankfurt School of Finance & Management
"Firm Expectations and News: Micro v Macro"
Thursday, 28 November 2024. 15:00-16:30
Room 588AB, Adam Smith Business School
Abstract
To shed light on the expectation formation of firms, we use firm-level data and examine how expectations adjust to news. We classify news as either micro (firm-specific developments) or macro (information about the aggregate economy). Analyzing survey data from Italian and German firms, we consistently find that expectations overreact to micro news but underreact to macro news. Our empirical specification is based on a stylized model of ‘island illusion,’ because of which firms systematically underestimate the importance of aggregate developments for their own performance. This illusion has aggregate implications, which we derive by embedding it into the canonical noisy-information model.
Bio
Benjamin Born is a Professor of Macroeconomics at the Frankfurt School of Finance & Management—where he is affiliated with the Centre for Central Banking—and a research fellow at the CEPR and CESifo. In addition, he currently serves as a research director at the ifo Institute’s Center for Macroeconomics and Surveys, an external consultant at the EU Commission’s DG ECFIN, and as an associate editor at the European Economic Review. He holds a Ph.D. in Economics from the Bonn Graduate School of Economics.
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First published: 11 October 2024