Subjective Uncertainty and Forecast Errors of Firms (Japanese)

This study, using original survey data linked with financial statements of Japanese listed firms, presents ex post evaluation of firms' ex ante subjective uncertainty. Ex ante forecast uncertainty in terms of sales and employment growth is taken from firms' subjective confidence interval from the point forecasts. Ex post forecast error is calculated as the deviation of actual figures from their point forecasts. The result indicates that ex ante subjective uncertainty has a positive association with realized absolute forecast error. The subjective confidence intervals for their own sales and employment is accurate as a measure of uncertainty compared with those for macroeconomic variables. These findings indicate that subjective probability distribution for business outlook that is captured in the firm survey contains valuable information in measuring economic uncertainty at the micro level.