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Agreed versus Disagreed Uncertainty School of Economics and Finance Seminar

Speaker: Dr Francesco Zanetti, University of Oxford

Abstract: We develop a new indicator of consumer disagreement from the Michigan Survey of Consumers, and study the relation between disagreement and uncertainty in a simple model with imperfect and dispersed information. The model shows that disagreement generates uncertainty while uncertainty reduces disagreement. We formulate and empirically identify two distinct concepts of agreed and disagreed uncertainty. Agreed uncertainty (elevated uncertainty under limited disagreement) is largely contractionary while disagreed uncertainty (elevated uncertainty under ample disagreement) has limited impact on economic activity. Interestingly, in the case of financial uncertainty, disagreed uncertainty is associated with a significant rise in consumer spending intentions on large consumer purchases (durables and vehicles) and realized consumption spending across durables, non-durables, and services while being accompanied by an increase in consumer confidence. Our results show that not all uncertainty is created equal, neither has the same contractionary effect on economic activity.

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