Michael Ehrmann, Gaetano Gaballo, Peter Hoffmann, Georg Strasser, 01 August 2019

Forward guidance – communication by a central bank about the likely future path of interest rates – usually reduces uncertainty. This column argues that how this is done in practice matters, however, because forward guidance with a short time horizon can raise uncertainty. This occurs if the forward guidance impairs the aggregation of private information in financial markets, thus making market prices less informative.

Lars Peter Hansen, Thomas Sargent, 22 July 2019

False pretences of knowledge about complicated economic situations have become all too common in public policy debates. This column argues that policymakers should take into account what they don’t know in their decision making. It describes a tractable approach for acknowledging, characterising, and responding to different forms of uncertainty, by using theories and statistical methods available at any particular moment.

Hites Ahir, Nicholas Bloom, Davide Furceri, 04 July 2019

Recent developments have inspired efforts to measure trade uncertainty. This column presents a new index of world trade uncertainty for 143 countries, measured on a quarterly basis from 1996 onwards, using the Economist Intelligence Unit country reports. The index shows that uncertainty in trade is rising sharply. This has important implications for global economic prospects.

Hites Ahir, Nicholas Bloom, Davide Furceri, 11 May 2019

According to the latest IMF projections, the global economy is now projected to grow at 3.3% in 2019, down from 3.6% in 2018. This is partly due to rising uncertainty in many parts of the world. This column shows how these statements are in line with the latest reading of the World Uncertainty Index, which shows a sharp increase in the first quarter of 2019. The increase in uncertainty observed in the first quarter could be enough to knock up to 0.5% of global growth over the course of the year. 

Meredith A. Crowley, Oliver Exton, Lu Han, 21 January 2019

Uncertainty over the future of the world trading system is at its highest since the introduction of GATT in 1947. The US-China trade war and suggestions that President Trump intends to withdraw the US from the WTO have significantly raised uncertainty in the global economy. Meanwhile, uncertainty over the future of the UK-EU trading relationship spiked on 15 January when the UK parliament overwhelmingly rejected the negotiated terms of the UK’s withdrawal from the EU. This column documents that an earlier period of heightened trade policy uncertainty for the UK – the period following the Brexit referendum in June 2016 – depressed the UK’s international trading activity, with some UK businesses choosing to not enter the EU market while others chose to exit. 

Hites Ahir, Nicholas Bloom, Davide Furceri, 29 November 2018

The global economy is growing, but so is uncertainty. This column presents a new quarterly index of uncertainty for 143 countries. The World Uncertainty Index reveals how uncertainty in the world has evolved over time, whether it is synchronised across countries, and how it compares across income groups and political regimes.

Nicholas Bloom, Scarlet Chen, Paul Mizen, 16 November 2018

The majority of businesses in the UK report that Brexit is a source of uncertainty. This column uses survey responses from around 3,000 businesses to evaluate the level and impact of this uncertainty. It finds that Brexit uncertainty has already reduced growth in investment by 6 percentage points and employment by 1.5 percentage points, and is likely to reduce future UK productivity by half of a percentage point.

Laura Nowzohour, Livio Stracca, 15 December 2017

At an intuitive level, economists and non-economists alike find it plausible that economic sentiment and economic developments are related. This column surveys recent theoretical and empirical work on the role of sentiment as a driver of the business cycle. Sentiment measures are found to be weakly correlated at the country level, but highly correlated across countries. Further, sentiment seems most closely correlated with economic and financial variables, and tends to be forward looking.

Benjamin Born, Gernot Müller, Moritz Schularick, Petr Sedláček, 29 May 2019

It is hard to calculate the current cost of Brexit, because there is no obvious counterfactual. The original version of this column, first published in November 2017, calculated the cost by letting a matching algorithm determine which combination of comparison economies best resembles the pre-referendum growth path of the UK economy. The results suggested a loss of 1.3% of GDP, or close to £300 million per week, since the vote took place. Subsequent updates using the latest OECD data suggest that the negative drag from the Brexit vote now appears to be roughly £350 million a week, but under current OECD forecasts we can expect the output loss to increase to about 4% of GDP by end-2020.

Jan Hanousek, Anastasiya Shamshur, Jiri Tresl, 29 October 2017

The idea that corruption hinders investments is not new, but the literature has tended to focus on the impact of average corruption levels. Based on 140,000 firm-level observations for 13 Central and Eastern European countries, this column explores the impact of corruption uncertainty. The evidence suggests that while foreign-controlled firms are unaffected by the corruption uncertainty factor, domestic firms decrease investments significantly when uncertainty about corruption practices increases. This decrease in investment is accompanied by a decrease in cash holdings, which points to a possible motive to build off-balance sheet funds for bribery purposes.

Jan Eeckhout, 18 September 2017

Firms and individuals spend a lot of time finding the right fit. In this video, Jan Eeckhout explains the role of uncertainty, and how it could help explain the increase in wage inequality. This video was recorded at the Barcelona Graduate School of Economics in November 2015.

Frank Caliendo, Maria Casanova, Aspen Gorry, Sita Nataraj Slavov, 16 November 2016

Not knowing when you are going to retire can make it hard to plan both savings and consumption in old age. This column examines how much uncertainty people face over their retirement and how costly this is as they attempt to make optimal saving plans. It argues that current structure of the Social Security retirement and disability programmes in the US does not provide much insurance against this uncertainty.

Jon Danielsson, 27 July 2016

Passporting, the right for the UK banking sector to carry out cross-border activity in the EU, is threatened by the UK's decision to leave the EU. In this video, Jon Danielsson discusses the options available to the UK regarding passporting. This video is part of the “Econ after Brexit” series organised by CEPR and was recorded on 14 July 2016.

Paolo Fulghieri, 13 May 2016

Are booms and busts in the technology sector irrational bubbles? In this Vox Views video, Paolo Fulghieri argues that this pattern is the outcome of rational investors who are uncertainty-averse about future innovation waves. Investors tend to value innovation more when it comes in clubs, whereas when innovation is done in isolation investors are more pessimistic. The video was recorded in April 2016 at the First Annual Spring Symposium on Financial Economics organised by CEPR and the Brevan Howard Centre at Imperial College.

Masayuki Morikawa, 11 April 2016

Forecasts of business conditions affect investment decisions. This column provides evidence that this is the case in Japan, using firm-level data collected between 2004 and 2014 covering several significant economic events. It also shows that the impacts of business condition forecasts on investment are similar across manufacturing and non-manufacturing industries.

Thomas Hintermaier, Winfried Koeniger, 09 January 2016

Crises of confidence turn booms into busts. Bloated household balance sheets and high debt offer the right ingredients for a confidence-driven housing bust. This column develops an analytic framework that accommodates the potential role of confidence fluctuations as a source of uncertainty in the economy. Current debt levels are shown to determine the exposure to crises of confidence. The results point to a clear role for macroprudential policy in the prevention of such crises. 

Alessandra Bonfiglioli, Gino Gancia, 19 December 2015

The Great Recession highlighted the prominent role that economic uncertainty plays in hindering investment and growth. This column provides new evidence that economic uncertainty can actually play a positive role by promoting the implementation of structural reforms with long-run benefits. The effect appears to be strongest for countries with poorly informed voters. These findings suggest that times of uncertainty may present an opportunity to implement reforms that would otherwise not be passed.

Scott Baker, Nicholas Bloom, Steven Davis, 15 December 2015

The recent influx of refugees to Europe has stoked security fears and created anxiety about the social and economic consequences. This column provides new quantitative indicators for the intensity of migration-related fears and policy uncertainty, based on newspaper articles. The indices are presented for the US, UK, France, and Germany, and extend back to 1995. They show that recent levels of concern and uncertainty in European countries about migration are unprecedented. 

Aqib Aslam, Samya Beidas-Strom, Daniel Leigh, Seok Gil Park, Hui Tong, 18 April 2015

Business investment in advanced economies contracted sharply during the global crisis and has recovered little since. This column argues that the main factor holding back investment is overall economomic weakness. In some countries other contributing factors include financial constraints and policy uncertainty. Fixing the investment dearth will require fixing the general weakness in economic activity.

Jason Furman, Ron Shadbegian, Jim Stock, 25 February 2015

The cost of delaying climate action has been studied extensively. This column discusses new findings based on a meta-analysis of published model runs. A one-decade delay in addressing climate change would lead to about a 40% increase in the net present value cost of addressing climate change. If anything, the methodology used in this analysis could understate the cost of delay. Uncertainty and the possibility of tipping points provide a motivation for more action as a form of insurance against worse outcomes.

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