Working Paper: NBER ID: w16143
Authors: Ruediger Bachmann; Steffen Elstner; Eric R. Sims
Abstract: What is the impact of time-varying business uncertainty on economic activity? Using partly confidential business survey data from the U.S. and Germany in structural VARs, we find that positive innovations to business uncertainty lead to prolonged declines in economic activity. In contrast, their high-frequency impact is small. We find no evidence of the "wait-and-see"-effect - large declines of economic activity on impact and subsequent fast rebounds - that the recent literature associates with positive uncertainty shocks. Rather, positive innovations to business uncertainty have effects similar to negative business confidence innovations. Once we control for their low-frequency effect, we find little statistically or economically significant impact of uncertainty innovations on activity. We argue that high uncertainty events are a mere epiphenomenon of bad economic times: recessions breed uncertainty.
Keywords: Uncertainty; Economic Activity; Business Survey Data
JEL Codes: E30; E32; E37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| business uncertainty (D89) | economic activity (E20) |
| negative business confidence innovations (O39) | economic activity (E20) |
| economic downturns (F44) | business uncertainty (D89) |
| business uncertainty (D89) | economic downturns (F44) |