Falls in uncertainty may warn of coming crises – Bundesbank paper

Researchers attempt to quantify relationship between rising confidence and early signs of crisis

Deutsche Bundesbank headquarters, Frankfurt
The Deutsche Bundesbank
Fabian Stürtz

Declines in economic uncertainty may be an early indicator of coming trouble in the financial sector, a working paper published by the Deutsche Bundesbank says.

In Uncertainty shocks and financial crisis indicators, Nikolay Hristov and Markus Roth note a paradox in the treatment of economic uncertainty.

A lot of research, they observe, shows that low uncertainty tends to lead to high investment or economic growth. But some theory suggests that “prolonged periods of low levels of uncertainty

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