Pandemic-Era Uncertainty

29 Pages Posted: 11 Jan 2021 Last revised: 13 Apr 2022

See all articles by Brent Meyer

Brent Meyer

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Emil Mihaylov

Federal Reserve Banks - Federal Reserve Bank of Dallas

Jose Maria Barrero

ITAM - Business School

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

David Altig

Federal Reserve Bank of Cleveland; Federal Reserve Banks - Federal Reserve Bank of Atlanta; University of Chicago - Booth School of Business

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 11, 2022

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: Business Expectations, Uncertainty, Subjective Forecast Distributions, Capital Investments

JEL Classification: D80, E22, E32

Suggested Citation

Meyer, Brent H. and Mihaylov, Emil and Barrero, Jose Maria and Davis, Steven J. and Altig, David and Altig, David and Bloom, Nicholas, Pandemic-Era Uncertainty (April 11, 2022). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-189, Available at SSRN: https://ssrn.com/abstract=3763448 or http://dx.doi.org/10.2139/ssrn.3763448

Brent H. Meyer

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
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United States

Emil Mihaylov

Federal Reserve Banks - Federal Reserve Bank of Dallas

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
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Jose Maria Barrero

ITAM - Business School ( email )

Rio Hondo No. 1
Col. Tizapan-San Angel Alc. Alvaro Obregon
Ciudad de Mexico, 01000
Mexico

Steven J. Davis (Contact Author)

University of Chicago ( email )

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Chicago, IL 60637
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773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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Hoover Institution

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David Altig

Federal Reserve Bank of Cleveland ( email )

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United States
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Federal Reserve Banks - Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

University of Chicago - Booth School of Business

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Nicholas Bloom

Stanford University - Department of Economics ( email )

Landau Economics Building, Room 231
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-7836 (Phone)

HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

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