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Uncertainty and Economic Activity: Evidence from Business Survey Data

  • Eric R. Sims

    ()

    (Department of Economics, University of Notre Dame)

This paper uses survey expectations data from both Germany and the United States to construct empirical proxies for time-varying business-level uncertainty. Access to the con?dential micro data from the German IFO Business Climate Survey permits construction of uncertainty measures based on both ex-ante disagreement and on ex-post forecast errors. Ex-ante disagreement is strongly correlated with dispersion in ex-post forecast errors, lending credence to the widespread practice of proxying for uncertainty with disagreement. Surprise movements in either measure are associated with signi?cant reductions in production that abate fairly quickly. We extend our analysis to US data, measuring uncertainty with forecast disagreement from the Business Outlook Survey administered by the Federal Reserve Bank of Philadelphia. In contrast to the German case, surprise increases in forecast dispersion lead to large and persistent reductions in production and employment.

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File URL: http://www3.nd.edu/~tjohns20/RePEc/deendus/wpaper/014_uncertainty.pdf
File Function: First version, 2012
Download Restriction: no

Paper provided by University of Notre Dame, Department of Economics in its series Working Papers with number 014.

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Length: 49 pages
Date of creation: Jun 2012
Date of revision: Jun 2012
Handle: RePEc:nod:wpaper:014
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  1. Sascha O. Becker & Klaus Wohlrabe, 2008. "European Data Watch: Micro Data at the Ifo Institute for Economic Research – The “Ifo Business Survey”, Usage and Access," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(2), pages 307-319.
  2. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
  3. Luigi Guiso & Giuseppe Parigi, 1999. "Investment and Demand Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 185-227.
  4. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
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  7. Pablo A. Guerron-Quintana & Martin Uribe & Juan Rubio-Ramirez & Jesús Fernández-Villaverde, 2009. "Risk Matters: The Real E¤ects of Volatility Shocks," 2009 Meeting Papers 237, Society for Economic Dynamics.
  8. Vladimir Yankov & Egon Zakrajsek & Simon Gilchrist, 2009. "Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets," 2009 Meeting Papers 514, Society for Economic Dynamics.
  9. repec:aeq:aeqsjb:v128:y2008:i2:q2:p307-319 is not listed on IDEAS
  10. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. "Really uncertain business cycles," LSE Research Online Documents on Economics 51526, London School of Economics and Political Science, LSE Library.
  11. Jon Cohen & Michelle Alexopoulos, 2009. "Uncertain Times, Uncertain Measures," 2009 Meeting Papers 1211, Society for Economic Dynamics.
  12. Michael E. Trebing, 1998. "What's happening in manufacturing: "survey says..."," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 15-29.
  13. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
  14. Robert W. Rich & Joseph Tracy, 2006. "The relationship between expected inflation, disagreement, and uncertainty: evidence from matched point and density forecasts," Staff Reports 253, Federal Reserve Bank of New York.
  15. Adina Popescu & Frank Rafael Smets, 2010. "Uncertainty, Risk-taking, and the Business Cycle in Germany," CESifo Economic Studies, CESifo, vol. 56(4), pages 596-626, December.
  16. Bomberger, William A, 1996. "Disagreement as a Measure of Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 381-92, August.
  17. Sascha O. Becker & Klaus Wohlrabe, 2007. "Micro Data at the Ifo Institute for Economic Research – The “Ifo Business Survey”, Usage and Access," Ifo Working Paper Series Ifo Working Paper No. 47, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
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