Measuring the response of macroeconomic uncertainty to shocks
Shields, K., Olekalns, N., Henry, Ó. T. and Brooks, C. (2005) Measuring the response of macroeconomic uncertainty to shocks. Review of Economics and Statistics, 87 (2). pp. 362-370. ISSN 1530-9142
To link to this article DOI: 10.1162/0034653053970276
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 size and sign bias and spillover effects. Uncertainty about inflation is a determinant of output uncertainty, whereas higher growth volatility tends to raise inflation volatility. Both inflation and growth volatility respond asymmetrically to positive and negative shocks. Negative growth and inflation shocks lead to higher and more persistent uncertainty than shocks of equal magnitude but opposite sign.