The economic effects of firm-level uncertainty: Evidence using subjective expectations

Using two decades of Italian survey data on business managers’ expectations we measure subjective firm-level uncertainty and quantify its economic effects. Firm-level uncertainty persists for a few years and varies across firms’ demographic characteristics. Uncertainty induces sizable and long-lasting economic effects over a broad array of real and financial variables only when driven by its downside component — that is, uncertainty about below-mean outcomes. Economy-wide uncertainty, constructed by aggregating firm-level uncertainty, is countercyclical but uncorrelated with typical proxies in the literature.