Measuring Economic Uncertainty and Its Effects
RBA Research Discussion Papers from Reserve Bank of Australia
I construct a monthly index of economic uncertainty for Australia. Economic uncertainty rose to historically high levels during the global financial crisis and remained elevated until late 2013. More recently, it has been a bit below its long-term average. The index of economic uncertainty: is higher around recessions, elections, monetary policy surprises and some major geopolitical events; tends to increase faster than it decreases; and is driven by both domestic and foreign factors. I use the index to assess how uncertainty affects the Australian economy. Consistent with the 'real options' channel of uncertainty, I find that it reduces investment and employment growth. Similarly, uncertainty raises the household saving ratio and reduces consumption growth for durable goods, consistent with the 'precautionary savings' channel of uncertainty. My results suggest that economic uncertainty can be an important independent driver of economic outcomes. It is therefore worth considering in policy and empirical work.
Keywords: uncertainty; economic uncertainty index; real options; precautionary savings; investment; employment (search for similar items in EconPapers)
JEL-codes: E20 E22 E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed
Downloads: (external link)
Journal Article: Measuring Economic Uncertainty and Its Effects (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2016-01
Access Statistics for this paper
More papers in RBA Research Discussion Papers from Reserve Bank of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Paula Drew ().