Disagreement on expectations: firms versus consumers

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Disagreement on expectations: firms versus consumers

Authors
Type
Published Article
Journal
SN Business & Economics
Publisher
Springer-Verlag
Publication Date
Jan 21, 2022
Accepted Date
Dec 21, 2021
Volume
1
Issue
12
Identifiers
DOI: 10.1007/s43546-021-00164-4
Source
MyScienceWork
Keywords
Funders
  • Agencia Estatal de Investigación
License
Green

Abstract

This paper evaluates the dynamic response of economic activity to shocks in agents' perception of uncertainty. The study focuses on the comparison between manufac-turers' and consumers' perception of economic uncertainty, gauged by a geometric discrepancy indicator to quantify the proportion of disagreement in eleven European countries and the Euro Area. A vector autoregressive framework is used to estimate the impulse response functions to innovations in disagreement, both for manufacturers and consumers. The effect on economic activity of shocks to the perception of uncertainty is found to differ markedly between both types of agents. On the one hand, shocks to consumer discrepancy tend to be of greater magnitude and duration than those to manufacturer discrepancy. On the other hand, innovations in disagreement between the two collectives have an opposite effect on economic activity: shocks to manufacturer discrepancy lead to a decrease in economic activity, as opposed to shocks to consumer discrepancy. This finding is of particular relevance to researchers when using cross-sectional dispersion of survey-based expectations for approximating and assessing economic uncertainty, since the effect on economic growth of shocks to disagreement may be dependent on the type of agent and the way in which expectations have been elicited.

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