ABSTRACT

Pandemic-Era Uncertainty on Main Street and Wall Street   [open pdf - 0B]

From the Abstract: "We draw on the monthly Survey of Business Uncertainty (SBU) to make three observations about pandemic-era uncertainty in the U.S. economy. First, equity market traders and executives of nonfinancial firms share similar assessments about uncertainty at one-year lookahead horizons. That is, the one-year VIX [Chicago Board Options Exchange Volatility Index] has moved similarly to our survey-based measure of (average) firm-level subjective uncertainty at one-year forecast horizons. Second, looking within the distribution of beliefs in the SBU reveals that firm-level expectations shifted towards 'upside' risk in the latter part of 2020. In this sense, decision makers in nonfinancial businesses share some of the optimism that seems manifest in equity markets. Third, and despite the positive shift in tail risks, overall uncertainty continues to substantially dampen capital spending plans, pointing to a source of weak growth in potential GDP [gross domestic product]."

Report Number:
Becker Friedman Institute for Research in Economics Working Paper No. 2020-189
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Date:
2020-12-31
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Copyright:
Becker Friedman Institute for Research in Economics
Retrieved From:
Becker Friedman Institute for Research in Economics: https://bfi.uchicago.edu/
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application/pdf
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