Sectoral Uncertainty

Efrem Castelnuovo, Kerem Tuzcuoglu and Luis Uzeda

Staff Working Papers from Bank of Canada

Abstract: We propose a new empirical framework that jointly decomposes the conditional variance of economic time series into a common and a sector-specific uncertainty component. We apply our framework to a large dataset of disaggregated industrial production series for the US economy. Our results indicate that common uncertainty and uncertainty linked to non-durable goods both recorded their pre-pandemic global peaks during the 1973-75 recession. In contrast, durable goods uncertainty recorded its pre-pandemic peak during the global financial crisis of 2008-09. Vector autoregression exercises identify unexpected changes in durable goods uncertainty as drivers of downturns that are both economically and statistically significant, while unexpected hikes in non-durable goods uncertainty are expansionary. Our findings suggest that: (i) uncertainty is heterogeneous at a sectoral level; and (ii) durable goods uncertainty may drive some business cycle effects typically attributed to aggregate uncertainty.

Keywords: Business fluctuations and cycles; Econometric and statistical methods; Monetary policy and uncertainty (search for similar items in EconPapers)
JEL-codes: C51 C55 E32 E44 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2022-09
New Economics Papers: this item is included in nep-ecm and nep-ets
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Related works:
Chapter: Sectoral uncertainty (2024)
Working Paper: Sectoral Uncertainty (2022)
Working Paper: Sectoral Uncertainty (2022)
Working Paper: Sectoral Uncertainty (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:22-38

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