Measuring Economic Uncertainty and Its Effects on Investment and Employment: Evidence from Greece

Economic uncertainty can discourage firms’ investment and employment decisions, yet its effects are difficult to measure and may vary considerably across firms and sectors. We examine these effects in Greece, a euro area economy that has experienced successive large shocks and substantial fluctuations in uncertainty during the last two decades. Using microdata from Business and Consumer Surveys (BCS), we construct new complementary business uncertainty indices based on ex-ante forecast disagreement and ex-post forecast errors, together with a firm-level measure of the perceived difficulty of predicting future business activity. These measures are positively correlated with existing uncertainty indicators while enabling more granular analysis across sectors and firms. The macroeconometric results indicate that increases in uncertainty are associated with substantial and persistent declines in investment and employment, lasting beyond one year. The microeconometric analysis further reveals significant heterogeneity and asymmetry in these effects, which depend on firms’ expectations, sectoral characteristics, and size, and are generally stronger among smaller firms and when expectations are negative. The findings demonstrate the value of business-survey data for systematically measuring and monitoring uncertainty and assessing its implications for real economic activity. Such measurement enables the identification of constraints faced by firms and provides insights for the design and implementation of policy measures aimed at mitigating the adverse effects of uncertainty and strengthening economic resilience.