IDEAS home Printed from https://ideas.repec.org/p/tcb/wpaper/1117.html
   My bibliography  Save this paper

Expectation Errors, Uncertainty And Economic Activity

Author

Listed:
  • Yavuz Arslan
  • Aslihan Atabek
  • Timur Hulagu
  • Saygin Sahinoz

Abstract

The aim of this study is to analyze the relationship between uncertainty and economic activity. For this purpose, we use a confidential firm level panel data set (Business Tendency Survey) from Turkey to form three uncertainty measures, namely total, idiosyncratic and aggregate uncertainty. In particular, we construct expectation errors of firms by comparing their survey responses about expectations and realizations on their production volume. Our results reveal countercyclical relationships between our uncertainty measures and economic activity. We further show that a one standard deviation increase in aggregate uncertainty is followed by a 0 : 5 percent decline in year-on-year change of industrial production on impact. The prolonged effect reaches more than 4 : 7 percent in a year for any of these three measures. In addition to the macroeconomic implications of uncertainty, we exploit the panel dimension of our data set to investigate the effects of firm specific uncertainty on that firm's investment decisions. Ordered probit estimation results show that if a firm makes more expectation errors -faces more uncertainty- it is more likely to defer investment plans even after controlling the aggregate uncertainty.

Suggested Citation

  • Yavuz Arslan & Aslihan Atabek & Timur Hulagu & Saygin Sahinoz, 2011. "Expectation Errors, Uncertainty And Economic Activity," Working Papers 1117, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1117
    as

    Download full text from publisher

    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2011/11-17
    Download Restriction: no

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Scott R. Baker & Nicholas Bloom, 2013. "Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments," NBER Working Papers 19475, National Bureau of Economic Research, Inc.
    2. MORIKAWA Masayuki, 2017. "Uncertainty over Production Forecasts: An empirical analysis using monthly firm survey data," Discussion papers 17081, Research Institute of Economy, Trade and Industry (RIETI).
    3. Bulut, Mustafa & Karasoy, Hatice Gökçe, 2016. "Para Politikası Belirsizliği Altında Aktarım Mekanizması: Türkiye Örneği
      [Transmission Mechanism Under Monetary Policy Uncertainty: The Case of Turkey]
      ," MPRA Paper 71215, University Library of Munich, Germany.
    4. Stephanie Denis & Prakash Kannan, 2013. "The Impact of Uncertainty Shocks on the UK Economy," IMF Working Papers 13/66, International Monetary Fund.
    5. repec:bis:bisifc:45-17 is not listed on IDEAS
    6. Morikawa, Masayuki, 2016. "Business uncertainty and investment: Evidence from Japanese companies," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 224-236.
    7. Niemann, Rainer & Sureth-Sloane, Caren, 2015. "Investment effects of wealth taxes under uncertainty and irreversibility," arqus Discussion Papers in Quantitative Tax Research 192, arqus - Arbeitskreis Quantitative Steuerlehre.
    8. Rainer Niemann & Caren Sureth-Sloane, 2015. "Investment Effects of Wealth Taxes under Uncertainty and Irreversibility," CESifo Working Paper Series 5610, CESifo Group Munich.
    9. repec:lrk:eeaart:36_1_16 is not listed on IDEAS

    More about this item

    Keywords

    Uncertainty; Qualitative Survey Data; Business Cycles; Investment;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tcb:wpaper:1117. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ozlem Ekmekciler Ramalho Rocha) or (Ilker Cakar). General contact details of provider: http://edirc.repec.org/data/tcmgvtr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.