Uncertainty and economic activity in Germany

The global spread of COVID-19 and the response to the pandemic have led to a rapid rise in uncertainty. Measuring uncertainty, however, is a challenge. In order to identify as broad an uncertainty measure for Germany as possible, an index is created that captures financial market volatility, politically induced uncertainty based on media reports and the heterogeneity of business expectations. This index shows that uncertainty has increased very strongly during the coronavirus pandemic and economic activity has dropped particularly sharply. From a theoretical perspective, the primary mechanism through which reduced (planning) certainty negatively influences economic decisions is that people postpone their consumption and investment decisions and wait for uncertainty to dissipate.

Uncertainty and economic activity in Germany(PDF, 319 KB, non-accessible)