{ "title": "Uncertainty about Uncertainty", "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom", "canonical": "https://www.imf.org/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom", "overlayPath": "/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom/index.md", "summary": "Measures of uncertainty don’t quite measure up", "sections": [ { "heading": "Overview", "content": "- Title: Uncertainty about Uncertainty\n- Publication: F&D Magazine\n- Authors: HITES AHIR, NICHOLAS BLOOM, DAVIDE FURCERI\n- Date: September 2025\n- Core takeaway: Text-based measures of uncertainty have surged in 2025, financial-market measures are elevated but not extreme, and survey-based measures show little recent increase. The authors conclude uncertainty has risen above long-term levels but is below the peaks of the global financial crisis and the pandemic; the 2025 surge is likely to slow growth through 2025 and 2026 but not induce a global recession." }, { "heading": "How uncertainty is measured", "content": "- Three main measurement approaches:\n - Textual analysis (newspapers, country reports)\n - Economic Policy Uncertainty (EPU) Index: analyzes newspaper mentions of economics, policy, and uncertainty; in 2025 the EPU for the United States reached a record high.\n - World Uncertainty Index (WUI): frequency of the term “uncertain” in Economist Intelligence Unit country reports (71 countries); shows a similar trajectory to the EPU.\n - Concerns: evolution of language, potential bias in sources, and word counts as imperfect measures of intensity.\n - Financial-market-based measures\n - VIX (Chicago Board Options Exchange Volatility Index): one-month-ahead implied volatility of the S&P 500.\n - In 2025 the VIX has been elevated—reaching 32 in April—but that was not a large spike compared with previous jumps.\n - Other market-based measures (e.g., ICE BofA MOVE Index) show increased but not extreme uncertainty.\n - Business surveys\n - US Survey of Business Uncertainty (SBU): administered by the Atlanta Federal Reserve Bank; queries almost 1,000 US businesses each month about sales forecasts.\n - SBU uncertainty roughly doubled between January and May 2020 during the pandemic; through June 2025 there was no uncertainty surge.\n - SBU panel raised predictions for sales growth after the November 2024 election of Donald Trump; forecasts declined in spring 2025 after the beginning of tariff wars.\n - UK Decision Maker Panel: polls about 2,500 businesses a month; UK sales uncertainty index mirrored the US pattern—surged during the pandemic but no recent increase." }, { "heading": "Empirical comparisons and interpretation", "content": "- Observed divergence in 2025:\n - Text-based indicators: exceptionally high, record-level discussion of uncertainty.\n - Financial-market indicators: elevated but not extreme (VIX reached 32 in April 2025).\n - Survey-based indicators: largely flat through June 2025 (no broad surge).\n- Possible explanations for divergence:\n - Text measures may be excessively high due to intense media focus on US political turmoil (e.g., Trump administration).\n - Financial and business measures are shorter-term and US-focused and may miss longer-term global uncertainty.\n - Authors’ inference: global uncertainty has risen, but not as much as text-based measures suggest; truth is intermediate between measures." }, { "heading": "Mechanisms: how uncertainty affects the economy", "content": "- Real-options channel\n - High uncertainty increases the option value of delay for irreversible investment decisions, causing firms to postpone investment and hiring.\n - When decisions are reversible, firms may shift toward part-time labor or renting rather than permanent hires or purchases.\n- Consumption channel\n - Individuals postpone purchases of durables (housing, cars, furniture) when income or economic uncertainty rises.\n- Financial channel\n - Uncertainty raises risk premiums, increasing the cost of borrowing and the probability of default.\n- Interaction with financial conditions\n - Uncertainty effects are magnified when financial conditions are tight; uncertainty and financial frictions can have a multiplicative impact." }, { "heading": "Findings on macroeconomic impact", "content": "- Empirical literature summarized:\n - Greater uncertainty strongly reduces investment.\n - Uncertainty has a weaker effect on employment and consumption relative to investment.\n - Uncertainty contributes to business cycle dynamics.\n- Scenario implications for 2025 surge:\n - If uncertainty rose as much as text-based measures indicate: potential for extremely damaging effects, possibly leading to a global recession.\n - If uncertainty rose as signaled by financial markets: might slow growth without generating a recession.\n - If business surveys are correct: little change in uncertainty over the past year.\n- Authors’ best judgment:\n - Uncertainty has risen above long-term levels but has not reached the peaks of the global financial crisis or the pandemic.\n - The 2025 surge in uncertainty will likely slow growth by reducing investment, hiring, and consumer spending on durable goods.\n - Timing: these effects typically take 6 to 18 months to slow growth (Caldara and Iacoviello 2022).\n - Outlook: slowdown likely through 2025 and 2026, but the rise in uncertainty is not large enough to induce a global recession." }, { "heading": "Key statistics and exact figures (as reported)", "content": "- VIX: reached 32 in April 2025.\n- US Survey of Business Uncertainty (SBU): queries almost 1,000 US businesses each month.\n- UK Decision Maker Panel: polls about 2,500 businesses a month.\n- SBU uncertainty: roughly doubled between January and May 2020.\n- Typical lag for uncertainty to slow growth: 6 to 18 months.\n\nUncertainty about Uncertainty, F&D Magazine, September 2025; authors HITES AHIR, NICHOLAS BLOOM, DAVIDE FURCERI.\n\n---\n\n Content in this bundle\n\n- Uncertainty about Uncertainty\n - Uncertainty about Uncertainty (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Uncertainty about Uncertainty (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom" } ], "bullets": [ "[Markdown version](/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom/index.md)", "[Structured JSON version](/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom/index.json)", "[Bundle manifest](/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom/bundle-manifest.json)", "Authors: HITES AHIR, NICHOLAS BLOOM, DAVIDE FURCERI", "Published: September 3, 2025", "Title: Uncertainty about Uncertainty", "Publication: F&D Magazine", "Authors: HITES AHIR, NICHOLAS BLOOM, DAVIDE FURCERI", "Date: September 2025", "Core takeaway: Text-based measures of uncertainty have surged in 2025, financial-market measures are elevated but not extreme, and survey-based measures show little recent increase. The authors conclude uncertainty has risen above long-term levels but is below the peaks of the global financial crisis and the pandemic; the 2025 surge is likely to slow growth through 2025 and 2026 but not induce a global recession.", "Three main measurement approaches:", "Observed divergence in 2025:", "Possible explanations for divergence:", "Real-options channel", "Consumption channel", "Financial channel", "Interaction with financial conditions", "Empirical literature summarized:", "Scenario implications for 2025 surge:", "Authors’ best judgment:", "VIX: reached 32 in April 2025.", "US Survey of Business Uncertainty (SBU): queries almost 1,000 US businesses each month.", "UK Decision Maker Panel: polls about 2,500 businesses a month.", "SBU uncertainty: roughly doubled between January and May 2020.", "Typical lag for uncertainty to slow growth: 6 to 18 months.", "**Uncertainty about Uncertainty**" ], "related": [ { "title": "Uncertainty about Uncertainty", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2025/09/bloom.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2025/09/bloom.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2025/09/bloom.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom/index.md", "json": "/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom/index.json", "bundleManifest": "/en/publications/fandd/issues/2025/09/uncertainty-about-uncertainty-nicholas-bloom/bundle-manifest.json" }, "generatedAtUtc": "2026-09-15T20:07:36.869Z" }