Uncertainty and Economic Activity: Evidence from Business Survey Data

49 Pages Posted: 29 Jun 2010  

Ruediger Bachmann

University of Michigan at Ann Arbor

Steffen Elstner

German Council of Economic Experts

Eric R. Sims

University of Michigan at Ann Arbor; University of Notre Dame - Department of Economics

Date Written: June 2010

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.

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

Ruediger Bachmann (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Steffen Elstner

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

Eric R. Sims

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

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