Measuring Knightian uncertainty

Andreas Dibiasi and David Iselin
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David Iselin: Bernisches Historisches Museum

Empirical Economics, 2021, vol. 61, issue 4, No 14, 2113-2141

Abstract: Abstract Knightian uncertainty represents a situation in which it is no longer possible to form expectations about future events. We propose a method to directly measure Knightian uncertainty. Our approach relies on firm-level data and measures the share of firms that do not formalize expectations about their future demand. We construct the Knightian Uncertainty Indicator for Switzerland and show that the indicator is able to identify times of high uncertainty. We evaluate the indicator by comparing it to established uncertainty measures. We find that a one standard deviation innovation of the Knightian Uncertainty Indicator leads to a negative and persistent reduction of investment.

Keywords: Knight; Uncertainty; Measurement; Business survey (search for similar items in EconPapers)
JEL-codes: D80 D84 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Working Paper: Measuring Knightian uncertainty (2021)
Working Paper: Measuring Knightian Uncertainty (2019)
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DOI: 10.1007/s00181-021-02106-3

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