Understanding the Sources of Macroeconomic Uncertainty

Barbara Rossi, Tatevik Sekhposyan and Soupré, Mattheiu

No 11415, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a decomposition to distinguish between Knightian uncertainty (ambiguity) and risk, where the first measures the uncertainty about the probability distribution generating the data, while the second measures uncertainty about the odds of the outcomes when the probability distribution is known. We use the Survey of Professional Forecasters (SPF) density forecasts to quantify overall uncertainty as well as the evolution of the different components of uncertainty over time and investigate their importance for macroeconomic fluctuations. We also study the behavior and evolution of the various components of our decomposition in a model that features ambiguity and risk.

Keywords: Uncertainty; Risk; Ambiguity; Knightian uncertainty; Survey of professional forecasters; Predictive densities (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-cse and nep-upt
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Citations: View citations in EconPapers (63)

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Related works:
Working Paper: Understanding the sources of macroeconomic uncertainty (2018)
Working Paper: Understanding the Sources of Macroeconomic Uncertainty (2016)
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