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Measuring the Response of Macroeconomic Uncertainty to Shocks

Kalvinder Shields, Nilss Olekalns (), Ólan Henry () and Chris Brooks

No 870, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Recent research documents the importance of uncertainty in determining macroeconomic outcomes, but little is known about the transmission of uncertainty across such outcomes. This paper examines the response of uncertainty about inflation and output growth to shocks documenting statistically significant asymmetries and spillovers. Uncertainty about inflation is a determinant of output uncertainty, while higher growth volatility tends to raise inflation volatility. Both inflation and growth volatility respond asymmetrically to positive and negative shocks. Negative growth shocks and positive shocks to inflation lead to higher and more persistent uncertainty than shocks of equal magnitude but opposite sign. Keywords: Asymmetry, Inflation, Output Growth, Variance Impulse Response Functions

Keywords: Asymmetry; Inflation; Output Growth; Variance Impulse Response Functions (search for similar items in EconPapers)
JEL-codes: E39 (search for similar items in EconPapers)
Date: 2003
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