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

Giuseppe Fiori and Filippo Scoccianti ()

No 1320, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

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 firm-level 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)
Pages: 48 p.
Date: 2021-06-28
New Economics Papers: this item is included in nep-bec, nep-cwa and nep-mac
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Working Paper: The Economic Effects of Firm-Level Uncertainty: Evidence Using Subjective Expectations (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1320

DOI: 10.17016/IFDP.2021.1320

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