Pandemic-Era Uncertainty on Main Street and Wall Street

10 Pages Posted: 11 Jan 2021

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 Atlanta

Steven J. Davis

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

Nicholas Parker

Federal Reserve Banks - Federal Reserve Bank of Atlanta

David Altig

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

Jose Maria Barrero

ITAM - Business School

Nicholas Bloom

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

Date Written: December 31, 2020

Abstract

We draw on the monthly Survey of Business Uncertainty (SBU) to make three observations about pandemic-era uncertainty in the U.S. economy. First, equity market traders and executives of nonfinancial firms share similar assessments about uncertainty at one-year look- ahead horizons. That is, the one-year VIX has moved similarly to our survey-based measure of (average) firm-level subjective uncertainty at one-year forecast horizons. Second, looking within the distribution of beliefs in the SBU reveals that firm-level expectations shifted towards upside risk in the latter part of 2020. In this sense, decision makers in nonfinancial businesses share some of the optimism that seems manifest in equity markets. Third, and despite the positive shift in tail risks, overall uncertainty continues to substantially dampen capital spending plans, pointing to a source of weak growth in potential GDP.

Keywords: Business Expectations, Uncertainty, Subjective Forecast Distributions, Surveys

JEL Classification: L2, M2, O32, O33

Suggested Citation

Meyer, Brent H. and Mihaylov, Emil and Davis, Steven J. and Parker, Nicholas and Altig, David and Barrero, Jose Maria and Bloom, Nicholas, Pandemic-Era Uncertainty on Main Street and Wall Street (December 31, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-189, Available at SSRN: https://ssrn.com/abstract=3763448

Brent H. Meyer

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

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

Emil Mihaylov

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

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

Steven J. Davis (Contact Author)

University of Chicago ( email )

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Chicago, IL 60637
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773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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Hoover Institution

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Nicholas Parker

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

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

David Altig

Federal Reserve Banks - Federal Reserve Bank of Atlanta

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

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2041 (Phone)

University of Chicago - Booth School of Business

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Jose Maria Barrero

ITAM - Business School ( email )

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

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 )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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