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Uncertainty and Economic Activity: Evidence from Business Survey Data

  • R?diger Bachmann
  • Steffen Elstner
  • Eric R. Sims

This paper uses survey expectations data to construct empirical proxies for time-varying business-level uncertainty. Access to the micro data from the German IFO Business Climate Survey permits construction of uncertainty measures based on both ex ante disagreement and ex post forecast errors. Ex ante disagreement is strongly correlated with dispersion in ex post forecast errors. Surprise movements in either measure lead to significant reductions in production that abate fairly quickly. We extend our analysis to US data, measuring uncertainty with forecast disagreement from the Business Outlook Survey. Surprise increases in forecast dispersion lead to more persistent reductions in production than in the German data. (JEL C53, C83, D81, E23, E27, E32, E37)

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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 5 (2013)
Issue (Month): 2 (April)
Pages: 217-49

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Handle: RePEc:aea:aejmac:v:5:y:2013:i:2:p:217-49
Note: DOI: 10.1257/mac.5.2.217
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  1. Ruediger Bachmann & Christian Bayer, 2009. "Firm-Specific Productivity Risk over the Business Cycle: Facts and Aggregate Implications," 2009 Meeting Papers 869, Society for Economic Dynamics.
  2. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
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