Not All Tides Lift the Boat: Boundary of Informativeness of Uncertainty Indices

In this article, we model the endogenous boundary of informativeness of uncertainty indices (UIs) using a panel threshold framework, employing both static LS and dynamic system-GMM specifications, and gauge the predictive power of these thresholds on economic outcomes. Specifically, we identified critical thresholds where UI shifts from background noise (uninformative) to a decisive factor (informative) in renewable energy (RE) adoption decisions. We find that the negative relationship between the UIs and energy transition is only significant and identified in the regime where uncertainty is relatively low, whereas the prediction power fails (becomes insignificant) in the high-uncertainty regimes. This suggests that the informational utility of UIs in driving (or forecasting) RE adoption operates conditionally upon moderate uncertainty levels. To explain the heterogeneous informativeness of UIs and validate the variations in our identified thresholds, we further conduct channel analyses. Relying on theoretical frameworks from risk literature, we show that risk preference, information overload, and priority concern theories can explain the level of threshold effects (informativeness) of UIs on economic outcomes. These findings provide an actionable insight for policymakers towards designing preemptive risk triggers when uncertainty crosses a critical threshold by frontloading investment activities in clean energy technologies to safeguard green energy transition pathways from headwinds of uncertainties.