Uncertainty is bad for Business. Really?

Nicolas Himounet (), Francisco Serranito and Julien Vauday

No 2021.03, Working Papers from International Network for Economic Research - INFER

Abstract: A growing empirical literature on how to measure uncertainty has emerged following the 2007-2008 financial crisis. Using a principal component analysis that includes the various measures of uncertainty provided by the literature, we develop a monthly global measure of uncertainty for the United States on the period 1990-2015 and we determine the factors explaining fluctuations in uncertainty. Beyond the general level of uncertainty we also identify a second factor which indicates the nature of the uncertainty, financial or non-financial. We investigate the impact of uncertainty shocks using local projection methods and our general measure of uncertainty. We find a significant negative impact of the general measure on economic activity. However, we obtain a positive and significant effect of the second dimension of uncertainty when the general level of uncertainty is high.

Keywords: Uncertainty; principal component analysis; local projection methods; economic activity (search for similar items in EconPapers)
JEL-codes: F (search for similar items in EconPapers)
Pages: 73 pages
Date: 2021
New Economics Papers: this item is included in nep-fdg
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Related works:
Working Paper: Uncertainty is bad for Business. Really? (2023)
Working Paper: Uncertainty is bad for Business. Really? (2023)
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