Cyclicality of uncertainty and disagreement

Osnat Zohar

Journal of Monetary Economics, 2024, vol. 143, issue C

Abstract: The empirical literature often uses disagreement (dispersion in forecasts) as a proxy for uncertainty, yet disagreement and uncertainty behave differently throughout the business cycle. The difference is especially salient in non-crisis periods, in which measures of disagreement are positively correlated with growth, while measures of uncertainty are negatively correlated with it. I explain this finding using a noisy information model with endogenous learning. In the model, agents observe noisy private information, but only when they are active. Holding uncertainty fixed, a rise in activity introduces noisy information to the market, and agents’ beliefs diverge, i.e., disagreement rises.

Keywords: Endogenous learning; Business cycles; Private information (search for similar items in EconPapers)
JEL-codes: D81 D83 D84 E32 E37 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Working Paper: Cyclicality of Uncertainty and Disagreement (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:143:y:2024:i:c:s0304393223001526

DOI: 10.1016/j.jmoneco.2023.12.002

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