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The Impact of Aggregate Uncertainty on Firm-Level Uncertainty

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  • Joshy Easaw
  • Christian Grimme

Abstract

We analyse the extent to which firm-level uncertainty is affected by aggregate uncertainty. Firm-level uncertainty is constructed from a large and monthly panel dataset of manufacturing firms. We find that aggregate uncertainty has a positive and robust impact on firm-level uncertainty. This effect holds across different types of domestic and international measures of aggregate uncertainty. However, the size of the impact is heterogeneous and depends on certain firm characteristics and the state of the business cycle. For example, the widely used economic policy uncertainty index matters to all firms’ uncertainty only in recessionary periods, while it is relevant over the entire business cycle only to large firms’ uncertainty.

Suggested Citation

  • Joshy Easaw & Christian Grimme, 2021. "The Impact of Aggregate Uncertainty on Firm-Level Uncertainty," CESifo Working Paper Series 8934, CESifo.
    • Handle: RePEc:ces:ceswps:_8934
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    More about this item

    Keywords

    firm-level uncertainty; aggregate uncertainty; survey data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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