Financial Conditions, Uncertainty and Expectations Errors of Firms

Financial Conditions, Uncertainty and Expectations Errors of Firms

25/15

Petre Caraiani, Nazlı Karamollaoğlu, Cihan Yalçın

English

September 2025

Using a novel and comprehensive database of Turkish firms that combines the Business Tendency Survey (BTS) with the Company Accounts Statistics, we analyze the determinants of expectation errors of Turkish manufacturing firms. We examine firm expectation errors for various variables, including those related to sales, exports, consumer and producer prices inflation rates. We investigate the impact of various firm characteristics and macroeconomic factors reflecting uncertainty (exchange rate volatility and Chicago Board Options Exchange Volatility Index- CBOE VIX) and monetary policy stance on firms’ absolute expectation errors. Using a fixed effects panel technique, we estimate that macro variables that control for uncertainty or volatility explain expectation errors better than firm-level variables. The rise in the exchange rate volatility and VIX is estimated to be associated with the worsening of the accuracy of expectations. The accuracy of expectations of sales improves with firm size while the accuracy of expectations errors for inflation rates declines with the share of short-term liabilities and liquidity ratio.

Expectation errors of firms, Firm heterogeneity, Sales, Exports and inflation rates, Macroeconomic uncertainty and volatility  

E31; D84; E37; G32