49 Pages Posted: 29 Jun 2010 Last revised: 12 Aug 2010
Date Written: June 2010
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.
Suggested Citation: Suggested Citation
Bachmann, Ruediger and Elstner, Steffen and Sims, Eric R., Uncertainty and Economic Activity: Evidence from Business Survey Data (June 2010). NBER Working Paper No. w16143. Available at SSRN: https://ssrn.com/abstract=1630148