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Unpacking Economic Uncertainty — Measuring the Firm, Sector and Aggregate Components

Author

Listed:
  • Siavash Mohades
  • Giulia Piccillo
  • Tania Treibich

Abstract

We introduce a novel method for measuring economic uncertainty at the firm, sector, and aggregate levels using sales volatility and validate it by comparison with existing macroeconomic uncertainty measures. We use Compustat firms data in the period 2000-2022 to construct our uncertainty measures for the U.S. economy. Our findings highlight that 1) macroeconomic conditions are the predominant source of firms’ uncertainty, 2) diverse firm traits yield notable heterogeneity, and 3) the manufacturing sector exhibits the highest uncertainty among sectors. Our findings shed light on the importance of firm and sectoral heterogeneity in studying uncertainty and its effects on economic activity.

Suggested Citation

  • Siavash Mohades & Giulia Piccillo & Tania Treibich, 2024. "Unpacking Economic Uncertainty — Measuring the Firm, Sector and Aggregate Components," CESifo Working Paper Series 10974, CESifo.
    • Handle: RePEc:ces:ceswps:_10974
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    References listed on IDEAS

    as
    1. Herskovic, Bernard & Kelly, Bryan & Lustig, Hanno & Van Nieuwerburgh, Stijn, 2016. "The common factor in idiosyncratic volatility: Quantitative asset pricing implications," Journal of Financial Economics, Elsevier, vol. 119(2), pages 249-283.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Keith C. Brown & Kenneth W. Wiles, 2015. "In Search of Unicorns: Private IPOs and the Changing Markets for Private Equity Investments and Corporate Control," Journal of Applied Corporate Finance, Morgan Stanley, vol. 27(3), pages 34-48, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    measuring uncertainty; firm heterogeneity; balance sheet data; business fluctuations;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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