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<p>Based on a large dataset, we estimate the probability of recession in the Netherlands, focusing on the role of uncertainty. The estimates rely on a univariate probit model with multiple regressors used to forecast recessions in quasi–real time. Uncertainty is incorporated into the model as a multi-faceted factor, while the other regressors are purged of its influence. The results show that uncertainty is an independent driver of recession risk. Although uncertainty does not improve the forecasting performance for aggregate economic downturns—suggesting that its contribution is more explanatory than predictive—it does so for business investment. This underlines the importance of uncertainty for predicting downturns in investment.</p>

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Does uncertainty raise the probability of a recession?

  • 期刊论文

  • 发表日期：

    2026年5月20日

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  • Jan Willem Van den End

摘要

Based on a large dataset, we estimate the probability of recession in the Netherlands, focusing on the role of uncertainty. The estimates rely on a univariate probit model with multiple regressors used to forecast recessions in quasi–real time. Uncertainty is incorporated into the model as a multi-faceted factor, while the other regressors are purged of its influence. The results show that uncertainty is an independent driver of recession risk. Although uncertainty does not improve the forecasting performance for aggregate economic downturns—suggesting that its contribution is more explanatory than predictive—it does so for business investment. This underlines the importance of uncertainty for predicting downturns in investment.