Working Paper: NBER ID: w29958
Authors: Brent H. Meyer; Emil Mihaylov; Jose Maria Barrero; Steven J. Davis; David Altig; Nicholas Bloom
Abstract: We examine several measures of uncertainty to make five points. First, equity market traders and executives at nonfinancial firms have shared similar assessments about one-year-ahead uncertainty since the pandemic struck. Both the one-year VIX and our survey-based measure of firm-level uncertainty at a one-year forecast horizon doubled at the onset of the pandemic and then fell about half-way back to pre-pandemic levels by mid 2021. Second, and in contrast, the 1-month VIX, a Twitter-based Economic Uncertainty Index, and macro forecaster disagreement all rose sharply in reaction to the pandemic but retrenched almost completely by mid 2021. Third, Categorical Policy Uncertainty Indexes highlight the changing sources of uncertainty – from healthcare and fiscal policy uncertainty in spring 2020 to elevated uncertainty around monetary policy and national security as of March 2022. Fourth, firm-level risk perceptions skewed heavily to the downside in spring 2020 but shifted rapidly to the upside from fall 2020 onwards. Perceived upside uncertainty remains highly elevated as of early 2022. Fifth, our survey evidence suggests that elevated uncertainty is exerting only mild restraint on capital investment plans for 2022 and 2023, perhaps because perceived risks are so skewed to the upside.
Keywords: No keywords provided
JEL Codes: D80; E22; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| equity market traders and executives at nonfinancial firms have aligned assessments of one-year-ahead uncertainty (G19) | firm-level uncertainty (D89) |
| the one-month VIX, a Twitter-based economic uncertainty index, and macro forecaster disagreement sharply rose at the pandemic's onset (E32) | changes in these uncertainty measures (D89) |
| categorical policy uncertainty indexes shifted from healthcare and fiscal policy concerns in spring 2020 (E63) | monetary policy and national security uncertainties (E63) |
| firm-level risk perceptions skewed to the downside in spring 2020 (G41) | shifted to the upside from fall 2020 onwards (P27) |
| elevated uncertainty (D89) | mild restraint on capital investment plans for 2022 and 2023 (G31) |