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Downside and Upside Uncertainty Shocks

Mario Forni, Luca Gambetti and Luca Sala

No 15881, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: An increase in uncertainty is not contractionary per se. What generates a significant downturn of economic activity is a widening of the left tail of the expected distribution of growth, the downside uncertainty. On the contrary, an increase of the right tail, the upside uncertainty, is mildly expansionary. The reason for 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 which combines quantile regressions and structural VARs.

Keywords: Var models; Quantile regression; Skewness; Uncertainty (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cwa, nep-ecm, nep-mac and nep-rmg
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