Uncertainty and Change: Survey Evidence of Firms’ Subjective Beliefs
This paper provides survey evidence on firms’ subjective uncertainty about future sales growth from a new panel data set of the German manufacturing sector. The main finding is that uncertainty reflects change: firms report more subjective uncertainty after either high or low growth realizations. In the cross section of firms, subjective uncertainty differs from statistical measures of uncertainty such as volatility: fast-growing and large firms report lower subjective uncertainty than fast-shrinking and small firms, respectively, even if they face shocks of similar size. By contrast, the substantial time variation in firm-specific subjective uncertainty resembles that in conditional volatility: both measures of uncertainty are mildly persistent and rise more when growth is temporarily low.