WEEKLY UPDATE JANUARY 21, 2013 Controlling uncertainty The ECB's monthly bulletin for January 2013 includes an article on the relationship between uncertainty, confidence and economic performance. The basic finding should not come as much of a surprise. High uncertainty tends to lower confidence among consumers and investors; lower confidence tends to weaken economic performance. As with many articles in economics, the strength of this piece lies not so much in the novelty of the finding as in the elegance with which the authors demonstrate their empirical support. Nevertheless, the authors do add a wrinkle with the notion of 'uncertainty shocks' -- sudden events that confound the views of consumers and investors, with lasting consequences for economic performance. This addition is important because uncertainty is not only the result of unforeseen or unforeseeable developments, like the weather. To a certain extent, uncertainty in the markets -- as in all areas of human...
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