Aversion and ambiguity: On the robustness of the macroeconomic uncertainty measure framework

Ahmed Bouteska, Taimur Sharif, Petr Hajek and Mohammad Zoynul Abedin

Technological Forecasting and Social Change, 2024, vol. 203, issue C

Abstract: The economic literature has focused on the role of uncertainty in the real economy, employing both measures of risk aversion and ambiguity aversion in structural models. In this connection, concerns about the measures for VIX and EPU, have been raised about whether or not they both measure and identify similar type of uncertainty. Using a structural vector autoregressive (SVAR) approach, we examine the relationship between VIX and EPU, their impact on the real economy and whether, and under which conditions, they can be distinguished between measures of risk aversion and ambiguity aversion. Specifically, we analyse the impact of uncertainty shocks of VIX and EPU on the industrial production, unemployment, and consumer credit in the US. Our main finding is that given their fundamental differences, the two measures are capturing different dimensions of uncertainty, VIX is a measure of risk aversion and EPU is a measure of ambiguity aversion. As such, our results are very important in terms of trading decision strategies to be implemented by investors and portfolio managers as it may help explain the two central behavioral traits affecting economic lifecycle problems, such as production, unemployment and consummation.

Keywords: Ambiguity aversion; Risk aversion; Industrial production; Unemployment rate; Consumer credit; SVAR-test framework (search for similar items in EconPapers)
JEL-codes: D91 G11 J17 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:203:y:2024:i:c:s0040162524001367

DOI: 10.1016/j.techfore.2024.123340

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