Wouter den Haan, Lukas B. Freund, Pontus Rendahl, 11 September 2021

It has been argued that increased uncertainty can worsen unemployment if employers prefer to wait and postpone job creation. However, under the dominant theory of unemployment – the search-and-matching model – the value of waiting plays no role. This column proposes an amended model which relaxes some of the theoretical assumptions, and shows that an increase in perceived uncertainty does indeed increase the value of waiting, thus reducing job creation.

Alejandro Fernández-Cerezo, Beatriz González, Mario Izquierdo, Enrique Moral-Benito, 26 August 2021

The Covid-19 pandemic and the imposed social distancing restrictions represented an unprecedented shock for the world economy and caused a marked increase in uncertainty. Based on a new firm-level survey matched with balance-sheet information, this column presents new evidence from Spain on the asymmetric impact of the pandemic shock. The impact of the Covid-19 shock was larger in the case of small and less productive firms within each sector and region. However, the unexpected announcement of the effectiveness of the Pfizer vaccine significantly improved the prospects of faster recovery under different sets of measures.

Dimitris Christelis, Dimitris Georgarakos, Tullio Jappelli, Geoff Kenny, 08 June 2021

The coronavirus pandemic has generated a complex economic shock that has affected households across the euro area very differently. This column uses survey data from around 10,000 households across Europe to reveal substantial divergences in the pandemic-induced financial concerns of households across population subgroups and countries. Financial concerns are significantly greater for younger, female, and low-income individuals in countries where the first wave of Covid-19 was more severe.

Alejandro Graziano, Kyle Handley, Nuno Limão, 26 January 2021

Following the Brexit referendum five years ago, firms in the UK and also those in the EU and other countries operated in an environment with increased uncertainty over future trade policies. This column presents evidence of the detrimental effects of this uncertainty on trade in the UK before any changes to trade policy had taken place. Studying the period after the Conservative Party won the general election in May 2015 until just after the Brexit referendum in June 2016, it finds that an increasing probability of Brexit significantly reduced UK export values and product entry, while increasing product exit.

Ingo Borchert, Mattia Di Ubaldo, 11 January 2021

Uncertainty over the future course of trade policy really matters. Developing countries obtain non-reciprocal tariff reductions from many industrialised countries through Generalised Systems of Preferences, but the uncertainty surrounding the continuation of preferential treatment is likely to undermine the schemes’ effectiveness. This column studies the 2014 reform of the EU’s Generalised System of Preferences, which removed the uncertainty on preferences for a subset of beneficiary countries. It finds that the removal of uncertainty led to an increase in EU imports from affected countries by about 45% without any changes in other market access conditions. This average trade impact is driven by country-sector pairs that are most exposed to preferences uncertainty prior to the reform, for which trade increased by over 70%.

Henrik Müller, Nico Hornig, 10 July 2020

The COVID-19 pandemic has spread massive economic uncertainty. But popular indicators were rather late in showing the size of the impact. To gauge the severity of future shocks in a timelier fashion, this column proposes a new taxonomy of economic uncertainty and an approach to measure it. In this vein it constructs a news-based indicator called Uncertainty Perception Indicator (UPI).

Josh De Lyon, Swati Dhingra, 19 June 2020

Despite the Covid-19 pandemic, the UK has been continuing its preparations to leave the EU by the end of 2020. Covid-19 has had a huge negative impact on the UK economy and Brexit will present another profound change in circumstances for UK businesses. Analysing real-time business survey data from the UK, this column shows that sectoral impacts of Covid-19 and Brexit are very different. Sectors that have suffered less during the lockdown are the ones that are exposed to bigger negative impacts from Brexit, as measured by actual effects since the Brexit vote and predicted effects from higher trade barriers with the EU.

Charles Manski, 12 June 2020

Formation of COVID-19 policy must cope with many substantial uncertainties about the nature of the disease, the dynamics of the pandemic, and behavioural responses. This column argues that instead of making policy that is optimal in hypothetical scenarios but potentially far from optimal in reality, it is more prudent to approach COVID-19 policy as a problem in decision making under uncertainty. Under ‘adaptive diversification’, a range of policies would be implemented across locations and policymakers would be able to revise the proportion of locations assigned to each policy as evidence accumulates.

Alexander Dietrich, Keith Kuester, Gernot Müller, Raphael Schoenle, 24 March 2020

The effects of the COVID-19 pandemic on the global economy are still largely unknown. The short-term economic impact will depend importantly on people’s expectations of the overall effect, and the amount of uncertainty thereof. This column uses a survey of US households to show that the expected economic effect is negative, large, and highly uncertain. An asset-pricing equation is used to quantify the implication of these expectations for the natural rate of interest. The natural rate declines by several percentage points, suggesting a role for monetary accommodation to (partially) offset the shock.

Paolo Manasse, Graziano Moramarco, Giulio Trigilia, 17 February 2020

The pound depreciated overnight by about 7% against the euro and other main currencies following the Leave victory in the UK’s EU referendum, suggesting that the markets expected Brexit to harm the British economy. Yet currency markets hailed the overwhelming victory of Brexiter Boris Johnson’s Conservative Party in the 2019 general election with a 2% appreciation of the pound. This column argues that this apparent contradiction can be explained by disentangling the effects that politics has on exchange rate expectations and a political risk premium.

Nicholas Bloom, Philip Bunn, Scarlet Chen, Paul Mizen, Pawel Smietanka, 25 September 2019

The Decision Maker Panel, a monthly survey of CFOs from around 3,000 UK businesses, provides data on the uncertainty created by the Brexit process and the effect that is having on British businesses. This column summarises the latest results up until end August 2019, which reveal a broad-based rise in the proportion of respondents reporting that Brexit was one of their top three sources of uncertainty in recent months to close to the highest level since the EU referendum.  That uncertainty is also expected to be more persistent than previously thought.

Scott Baker, Nicholas Bloom, Steven Davis, 17 September 2019

Tariff threats, hikes, and retaliations have become a major source of economic uncertainty and stock market volatility. This column draws on three initiatives to demonstrate that recent rise in trade policy uncertainty, driven by the US withdrawal from the Trans-Pacific Partnership, tariff hikes on US steel and aluminium imports, ongoing Brexit uncertainty, and escalating US-China trade tensions, is extraordinary by several metrics. 

Nicholas Bloom, Philip Bunn, Scarlet Chen, Paul Mizen, Pawel Smietanka, Gregory Thwaites, 04 September 2019

The UK’s decision to leave the EU in the June 2016 referendum was a largely unexpected event that has generated a large, broad, and long-lasting increase in uncertainty. It has also affected some firms more than others depending on the strength of their links to Continental Europe. This column exploits these features and uses a major new survey of UK firms to show that the anticipation of Brexit has already made its mark on the UK economy. It has gradually reduced investment by about 11% and decreased productivity by about 2% to 5% over the three years since the referendum.

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.

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