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The Economic Effects of Firm-Level Uncertainty: Evidence Using Subjective Expectations

Giuseppe Fiori and Filippo Scoccianti ()
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Filippo Scoccianti: Bank of Italy

No 630, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper uses over two decades of Italian survey data on business managers’ expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms’ demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes. Economy-wide uncertainty, constructed aggregating firmlevel uncertainty, is countercyclical but uncorrelated with typical proxies in the literature, and accounts for a sizable amount of GDP variation during crises.

Keywords: uncertainty; business cycles; investment; expectations; cash holdings; downside uncertainty (search for similar items in EconPapers)
JEL-codes: D24 E22 E24 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-bec, nep-cwa, nep-isf and nep-mac
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https://www.bancaditalia.it/pubblicazioni/qef/2021-0630/QEF_630_21.pdf (application/pdf)

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