Expected, unexpected, good and bad aggregate uncertainty

Jorge Uribe and Helena Chuliá

Studies in Nonlinear Dynamics & Econometrics, 2023, vol. 27, issue 2, 265-284

Abstract: We study aggregate uncertainty and its linear and nonlinear impact on real and financial markets. By distinguishing between four general notions of aggregate uncertainty (good-expected, bad-expected, good-unexpected, bad-unexpected) within a simple, common framework, we show that it is bad-unexpected uncertainty shocks that generate a negative reaction of economic variables (such as investment and consumption) and asset prices. Our results help to elucidate the real, complex nature of uncertainty, which can be both a backward- or forward-looking expected or unexpected event, with markedly different consequences for the economy. We also document nonlinearities in the propagation of uncertainty to both real and financial markets, which calls for the close monitoring of the evolution of uncertainty so as to help mitigate the adverse effects of its occurrence.

Keywords: aggregate uncertainty; asset prices; economic activity; nonlinear effects (search for similar items in EconPapers)
JEL-codes: C58 E20 E44 G10 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/snde-2020-0127

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