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)
Bachmann, Rüdiger, Steffen Elstner, and Eric R. Sims.
"Uncertainty and Economic Activity: Evidence from Business Survey Data."
American Economic Journal: Macroeconomics,
Forecasting Models; Simulation Methods
Survey Methods; Sampling Methods
Criteria for Decision-Making under Risk and Uncertainty
Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
Business Fluctuations; Cycles
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications