Working Paper: CEPR ID: DP15881
Authors: Mario Forni; Luca Gambetti; Luca Sala
Abstract: An increase in uncertainty is not contractionary per se. What generates a significant downturnof economic activity is a widening of the left tail of the expected distribution of growth,the downside uncertainty. On the contrary, an increase of the right tail, the upside uncertainty,is mildly expansionary. The reason for why uncertainty shocks have been previouslyfound to be contractionary is because movements in downside uncertainty dominate existingempirical measures of uncertainty. The results are obtained using a new econometricapproach which combines quantile regressions and structural VARs.
Keywords: VAR models; quantile regression; skewness; uncertainty
JEL Codes: C32; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| downside uncertainty (D81) | economic activity (E20) |
| upside uncertainty (D84) | economic activity (E20) |
| total uncertainty (D89) | economic activity (E20) |
| downside uncertainty (D81) | total uncertainty (D89) |