On the dynamics of expectations, uncertainty and economic growth: an empirical analysis for the case of Uruguay

Purpose - From these data, the authors construct an uncertainty index through the use of a vector autoregressive (VAR) model to measure the impact of uncertainty on GDP, controlling for inflation, which may affect macroeconomic performance. Results indicate that uncertainty is negatively correlated with the economic cycle and the inter-annual variation of the biannual average product. Design/methodology/approach - This study empirically explores the dynamics of expectations of the Uruguayan manufacturing firms about industrial economic growth. This study explores the dynamics of the industrial economic growth expectations of Uruguayan manufacturing firms. The empirical research is based on firms' expectations data collected through a monthly survey carried out by the Chamber of Industries of Uruguay (CIU) in 2003–2018. Findings - Granger causality tests show that uncertainty Granger-causes industrial production growth and a one standard deviation shock on uncertainty generates a contraction in the industrial production growth rate. Finally, the authors use statistical and network tools to identify groups of firms with similar performance on expectations. Results show that higher uncertainty is associated with smaller, more interconnected groups of firms, and that the number of homogeneous groups and the distance between groups increases with uncertainty. These findings suggest that policies focused on the coordination of expectations can lead to the development of stable opinion groups. Originality/value - The paper introduces new data and new methodologies to analyze the dynamics of expectations of manufacturing firms about industrial economic growth. Highlights - An empirical approach to compare expectations of firms is introduced.The occurrence of groups of opinion is tested.Central companies in the network of expectations are detected.More uncertainty implies a higher degree of discrepancy between the overall firm’s opinions and more compact opinion groups.