The Impact of Uncertainty Shocks on the UK Economy

Stephanie Denis and Prakash Kannan

No 2013/066, IMF Working Papers from International Monetary Fund

Abstract: This paper quantifies the economic impact of uncertainty shocks in the UK using data that span the recent Great Recession. We find that uncertainty shocks have a significant impact on economic activity in the UK, depressing industrial production and GDP. The peak impact is felt fairly quickly at around 6-12 months after the shock, and becomes statistically negligible after 18 months. Interestingly, the impact of uncertainty shocks on industrial production in the UK is strikingly similar to that of the US both in terms of the shape and magnitude of the response. However, unemployment in the UK is less affected by uncertainty shocks. Finally, we find that uncertainty shocks can account for about a quarter of the decline in industrial production during the Great Recession.

Keywords: WP; uncertainty shock; economic activity; United Kingdom; Uncertainty; UK GDP; consumer confidence; policy rate shock; VAR framework; baseline Var model; unemployment in the UK; VAR model; Industrial production; Central bank policy rate; GDP forecasting; Global financial crisis of 2008-2009; Vector autoregression; Global (search for similar items in EconPapers)
Pages: 24
Date: 2013-03-08
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Citations: View citations in EconPapers (40)

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