June 2021

The Economic Effects of Firm-Level Uncertainty: Evidence Using Subjective Expectations

Giuseppe Fiori and Filippo Scoccianti


This paper uses over two decades of Italian survey data on business managers' expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms' demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes. Economy-wide uncertainty, constructed aggregating firm-level uncertainty, is countercyclical but uncorrelated with typical proxies in the literature, and accounts for a sizable amount of GDP variation during crises.

Keywords: Uncertainty, business cycles, investment, expectations, cash holdings, downside uncertainty

DOI: https://doi.org/10.17016/IFDP.2021.1320

PDF: Full Paper

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Last Update: June 28, 2021