Insight

Look back in confusion

Firms estimate present, past and future inflation to be higher than usual despite availability of accurate data

Despite our best efforts, many of us often continue to live in the past. Do firms also suffer from similar drawbacks? As part of a survey, researchers Olivier Coibion, Yuriy Gorodnichenko and Saten Kumar found that, operating under a regime that was battling inflation, many firms estimated present, past and future inflation to be higher than usual — more than estimates by professional forecasters — despite easy availability of accurate data. But, despite these beliefs, very few firms thought this phenomenon affected their business decisions; many didn’t even bother collecting information about it. Missing the wood for the trees?

Title: How Do Firms Form Their Expectations? New Survey Evidence

Source: The National Bureau of Economic Research

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