New research from Eric Sims, assistant professor of economics, casts doubt on a long-held belief that business uncertainty causes an immediate slowing of economic activity.
Published recently by the National Bureau of Economic Research, the study by the Notre Dame economist and his colleagues from the University of Michigan and the University of Munich found no evidence that increases in uncertainty lead to what is known as a “wait-and-see effect.”
“We wanted to tackle the question of whether surprise increases in business uncertainty lead to large and quick drops in economic activity,” Sims says.
“Our main finding is that increases in business uncertainty are associated with prolonged declines in economic activity, but that it takes a long time to play out. Uncertainty seems to be more of a consequence of recessions, not a cause of recessions,” Sims says.
One of the implications of this research for policy makers is that talking about the need to end uncertainty makes no difference; instead, only an increased demand will have an economic impact.
A member of the Notre Dame faculty since 2009, Sims specializes in macroeconomics and is also a faculty research fellow at the National Bureau of Economic Research.
Originally published by newsinfo.nd.edu.