The utility of expectational data: Firm-level evidence using matched qualitative-quantitative UK surveys

Qualitative expectational data from business surveys are widely used to construct forecasts. However, based typically on evaluation at the macroeconomic level, doubts persist about the utility of these data. This paper evaluates the ability of the underlying firm-level expectations to anticipate subsequent outcomes. Importantly, this evaluation is not hampered by only having access to qualitative outcome data obtained from subsequent business surveys. Quantitative outcome data are also exploited. This required access to a unique panel dataset which matches firms' responses from the qualitative business survey with the same firms' quantitative replies to a different survey carried out by the national statistical office. Nonparametric tests then reveal an apparent paradox. Despite evidence that the qualitative and quantitative outcome data are related, we find that the expectational data offer rational forecasts of the qualitative but not the quantitative outcomes. We discuss the role of "discretisation" errors and the loss function in explaining this paradox.