Working Paper: NBER ID: w19456
Authors: Kyle Jurado; Sydney C. Ludvigson; Serena Ng
Abstract: This paper exploits a data rich environment to provide direct econometric estimates of time-varying macroeconomic uncertainty, defined as the common volatility in the unforecastable component of a large number of economic indicators. Our estimates display significant independent variations from popular uncertainty proxies, suggesting that much of the variation in the proxies is not driven by uncertainty. Quantitatively important uncertainty episodes appear far more infrequently than indicated by popular uncertainty proxies, but when they do occur, they are larger, more persistent, and are more correlated with real activity. Our estimates provide a benchmark to evaluate theories for which uncertainty shocks play a role in business cycles.
Keywords: Uncertainty; Macroeconomic Fluctuations; Econometric Estimates
JEL Codes: E0; E27
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| time-varying economic uncertainty (E32) | macroeconomic activity (E39) |
| large positive innovations in macro uncertainty (D89) | real activity (E23) |
| common macro uncertainty shocks (E19) | forecast error variance in industrial production (E23) |
| macroeconomic uncertainty (D89) | real activity (E23) |