Downside and Upside Uncertainty Shocks

Mario Forni, Luca Gambetti and Luca Sala

Journal of the European Economic Association, 2025, vol. 23, issue 1, 159-189

Abstract: An increase in uncertainty is not contractionary per se. What is contractionary is a widening of the left tail of the GDP growth forecast distribution, the downside uncertainty. On the contrary, an increase of the right tail, the upside uncertainty, is mildly expansionary. The reason why uncertainty shocks have been previously found to be contractionary is because movements in downside uncertainty dominate existing empirical measures of uncertainty. The results are obtained using a new econometric approach that combines quantile regressions and structural vector autoregressions (VARs).

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:23:y:2025:i:1:p:159-189.

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