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American Economic Journal: Macroeconomics: Vol. 5 No. 2 (April 2013)

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Uncertainty and Economic Activity: Evidence from Business Survey Data

Article Citation

Bachmann, Rüdiger, Steffen Elstner, and Eric R. Sims. 2013. "Uncertainty and Economic Activity: Evidence from Business Survey Data." American Economic Journal: Macroeconomics, 5(2): 217-49.

DOI: 10.1257/mac.5.2.217

Abstract

This paper uses survey expectations data to construct empirical proxies for time-varying business-level uncertainty. Access to the micro data from the German IFO Business Climate Survey permits construction of uncertainty measures based on both ex ante disagreement and ex post forecast errors. Ex ante disagreement is strongly correlated with dispersion in ex post forecast errors. Surprise movements in either measure lead to significant reductions in production that abate fairly quickly. We extend our analysis to US data, measuring uncertainty with forecast disagreement from the Business Outlook Survey. Surprise increases in forecast dispersion lead to more persistent reductions in production than in the German data. (JEL C53, C83, D81, E23, E27, E32, E37)

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Authors

Bachmann, Rüdiger (RWTH Aachen U and Ifo Institute, Munich)
Elstner, Steffen (Ifo Institute, Munich)
Sims, Eric R. (U Notre Dame and Ifo Institute, Munich)

JEL Classifications

C53: Forecasting Models; Simulation Methods
C83: Survey Methods; Sampling Methods
D81: Criteria for Decision-Making under Risk and Uncertainty
E23: Macroeconomics: Production
E27: Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
E32: Business Fluctuations; Cycles
E37: Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications

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