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Subjective interest rate uncertainty and the macroeconomy: A cross-country analysis

Klodiana Istrefi () and Sarah Mouabbi ()

Journal of International Money and Finance, 2018, vol. 88, issue C, 296-313

Abstract: We ask whether uncertainty about interest rates is important for economic activity. The effects of interest rate uncertainty on the economy are examined through the lens of a small VAR where the assumption that uncertainty can affect real activity contemporaneously but not vice versa is indeed in line with the data. Our measure of uncertainty stems from professional forecasts of short- and long-term interest rates and accounts for both disagreement among forecasters and the perceived variability of future aggregate shocks. Studying a panel of countries we find that subjective interest rate uncertainty has large, negative and persistent effects on the economy.

Keywords: Interest rates; Subjective uncertainty; Surveys of professional forecasters; Macroeconomic fluctuations; Structural VAR (search for similar items in EconPapers)
JEL-codes: C32 E43 E47 F44 F47 (search for similar items in EconPapers)
Date: 2018
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Related works:
Journal Article: National natural rates of interest and the single monetary policy in the euro area (2018) Downloads
Journal Article: Subjective interest rate uncertainty and the macroeconomy: a cross-country analysis (2017) Downloads
Working Paper: Subjective Interest Rate Uncertainty and the Macroeconomy: A Cross-country Analysis (2017) Downloads
Working Paper: UK Term Structure Decompositions at the Zero Lower Bound (2015) Downloads
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DOI: 10.1016/j.jimonfin.2017.07.015

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