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Measuring Firm-level Uncertainty: New evidence from a business outlook survey

Masayuki Morikawa

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This study, using quarterly, firm-level panel data constructed from government statistics, presents empirical evidence on measurements of firms' business uncertainty and how this is associated with their investments. According to the analysis, first, uncertainty measures calculated from ex post forecast errors have strong seasonal fluctuations because of the respondents choosing "unsure" in the survey. Second, while an "unsure" response positively correlates with stock market volatility and the economic policy uncertainty index, correlation between the forecast error-based measures of uncertainty and these macroeconomic uncertainty indices are very weak. Third, the higher degree of uncertainty observed from firms who responded "unsure" after the 2008 global financial crisis has remained high afterward. Fourth, at the firm-level, the responses "unsure" for the next two quarters have clear negative associations with investments realized in these quarters. These results highlight the importance of paying attention to the design of surveys.

Date: 2018-05
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