Sailing through uncertainty: Inspecting mechanisms in advanced and developing economies

This paper investigates how uncertainty has shaped economic performance across 143 countries between 1960 and 2023. Our aim is to improve upon the prior literature’s fragmented approach by providing a systematic empirical evaluation of a broad set of channels using a unified dataset and a common measure of uncertainty—the World Uncertainty Index (WUI). Using local projections, we find that increases in uncertainty are followed by negative, statistically significant, and persistent responses of economic growth. By year 5, real GDP per capita growth is around 0.05 percentage points lower relative to baseline, with effects roughly doubling to 0.1 pp by year 10. The responses are more pronounced in emerging and developing economies and vary systematically with fiscal conditions and financial openness. Overall, the results suggest that the propagation of uncertainty depends on structural and policy characteristics, consistent with a role for fiscal frameworks and policy credibility, while remaining agnostic about strict causal identification.