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Information frictions among firms and households

Information frictions among firms and households

556/2021 Sebastian Link, Andreas Peichl, Christopher Roth and Johannes Wohlfart
working papers,political economy

556/2021 Sebastian Link, Andreas Peichl, Christopher Roth and Johannes Wohlfart

We leverage survey data from Germany, Italy, and the US to document several novel stylized facts about the extent of information frictions among firms and households. First, firms’ expectations about the central bank policy rate, inflation, and aggregate unemployment are more aligned with expert forecasts and less dispersed than households’. Second, there is substantially more heterogeneity in information frictions within households than within firms. Third, consistent with firms having stronger priors, they update their policy rate expectations significantly less compared to households when provided with an expert forecast. Our results have important implications for modelling heterogeneity in macroeconomic models.

Political Economy