Uncertainty Shocks as Second-Moment News Shocks

David Berger, Ian Dew-Becker and Stefano Giglio

No 23796, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide evidence on the relationship between aggregate uncertainty and the macroeconomy. Identifying uncertainty shocks using methods from the news shocks literature, the analysis finds that innovations in realized stock market volatility are robustly followed by contractions, while shocks to forward-looking uncertainty have no significant effect on the economy. Moreover, investors have historically paid large premia to hedge shocks to realized but not implied volatility. A model in which fundamental shocks are skewed left can match those facts. Aggregate volatility matters, but it is the realization of volatility, rather than uncertainty about the future, that has been associated with declines.

JEL-codes: E00 E32 G12 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-mac and nep-rmg
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Citations: View citations in EconPapers (20)

Published as David Berger & Ian Dew-Becker & Stefano Giglio, 2020. "Uncertainty Shocks as Second-Moment News Shocks," The Review of Economic Studies, vol 87(1), pages 40-76.

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Journal Article: Uncertainty Shocks as Second-Moment News Shocks (2020)
Working Paper: Uncertainty Shocks as Second-Moment News Shocks (2017)
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