On Persistence of Uncertainty Shocks

Sergey Egiev

HSE Working papers from National Research University Higher School of Economics

Abstract: I study real e ects of uncertainty shocks. Using time-varying volatility of the forecast error, I construct a two-part uncertainty metric that consists of persistent and volatile, burstlike components. These indices are used to study empirically several predictions of uncertainty models: that uncertainty shocks have real e ects, that these e ects realize in a downturn/overshoot pattern and that persistence of uncertainty shocks decreases this pattern's frequency and increases its amplitude. Using the constructed metric in a simple VAR framework I show that real e ects are there, that shock to the volatile uncertainty causes signi cant downturn/overshoot pattern, and that shock to the persistent component causes severe and prolonged damage.

Keywords: uncertainty; business-cycles; real business cycles (search for similar items in EconPapers)
JEL-codes: C53 E32 G12 G35 L25 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2016
New Economics Papers: this item is included in nep-cfn and nep-mac
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Published in WP BRP Series: Economics / EC, August 2016, pages 1-19

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:144/ec/2016

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