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Measuring Uncertainty and Its Impact on the Economy

Andrea Carriero, Todd Clark and Massimiliano Marcellino
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Andrea Carriero: Queen Mary University of London

The Review of Economics and Statistics, 2018, vol. 100, issue 5, 799-815

Abstract: Abstract We propose a new model for measuring uncertainty and its effects on the economy, based on a large vector autoregression with stochastic volatility driven by common factors representing macroeconomic and financial uncertainty. The uncertainty measures reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Estimates with U.S. data show substantial commonality in uncertainty, with sizable effects of uncertainty on key macroeconomic and financial variables. However, historical decompositions show a limited role of uncertainty shocks in macroeconomic fluctuations.

Date: 2018
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Working Paper: Measuring Uncertainty and Its Impact on the Economy (2017) Downloads
Working Paper: Measuring Uncertainty and Its Impact on the Economy (2016) Downloads
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