Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263445 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15229
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We examine several measures of uncertainty to make five points. First, equity market traders and executives at nonfinancial firms have shared similar assessments about one-year-ahead uncertainty since the pandemic struck. Both the one-year VIX and our survey-based measure of firm-level uncertainty at a one-year forecast horizon doubled at the onset of the pandemic and then fell about half-way back to pre-pandemic levels by mid 2021. Second, and in contrast, the 1-month VIX, a Twitter-based Economic Uncertainty Index, and macro forecaster disagreement all rose sharply in reaction to the pandemic but retrenched almost completely by mid 2021. Third, Categorical Policy Uncertainty Indexes highlight the changing sources of uncertainty – from healthcare and fiscal policy uncertainty in spring 2020 to elevated uncertainty around monetary policy and national security as of March 2022. Fourth, firm-level risk perceptions skewed heavily to the downside in spring 2020 but shifted rapidly to the upside from fall 2020 onwards. Perceived upside uncertainty remains highly elevated as of early 2022. Fifth, our survey evidence suggests that elevated uncertainty is exerting only mild restraint on capital investment plans for 2022 and 2023, perhaps because perceived risks are so skewed to the upside.
Subjects: 
business expectations
uncertainty
subjective forecast distributions
capital investments
COVID-19
JEL: 
D80
E22
E32
Document Type: 
Working Paper

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