Measuring Chinese consumers’ perceived uncertainty

An unanticipated change in consumers’ view on the expected economic condition has the potential to provide information about the degree of economic uncertainty. Based on this intuition, we construct a monthly time-varying Chinese economic uncertainty measure using the Chinese Consumer Opinion Survey data from September 2002 to June 2018. Our economic uncertainty measure varies counter-cyclically and has strong predictive power for future recessions, GDP, consumption, industrial production, trade, and stock prices, even after controlling for other uncertainty indices. Moreover, we confirm that our economic uncertainty measure does not vary in response to real economic activities, but it rather precedes future real economic activities. Finally, we find that a shock to our uncertainty measure significantly reduces future Chinese GDP and consumption as well as US production, CPI, export, and import. The effect of our uncertainty index shock is stronger and longer-lasting on both Chinese and US economies than the realized variance of the stock market returns or the economic policy uncertainty index.