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Expectation errors, uncertainty, and economic activity

Yavuz Arslan (), Aslihan Atabek Demi̇rhan (), Timur Hulagu and Saygın Şahinöz
Authors registered in the RePEc Author Service: Saygin Cevik ()

Oxford Economic Papers, 2015, vol. 67, issue 3, 634-660

Abstract: In this article we analyse the relationship between uncertainty and economic activity. For this purpose, we use a firm-level panel data set from Turkey to form proxies for uncertainty by using expectation errors of firms about their production volumes. The identifying assumption is that the probability of making an expectation error increases when the uncertainty faced increases. An analysis of the downturn in 2008–2009 shows that 44% of the decline in industrial production can be attributed to increased uncertainty. Moreover, we show that if a firm faces higher uncertainty it is more likely that it defers its investment plans.

Date: 2015
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Working Paper: Expectation Errors, Uncertainty And Economic Activity (2011) Downloads
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