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Measuring Uncertainty and Its Impact on a Small Open Economy

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  • Lucy Greig
  • Amy Rice
  • Tugrul Vehbi
  • Benjamin Wong

Abstract

We study the effect of uncertainty in New Zealand, a small open economy, by considering global and New Zealand†specific uncertainty proxies, including several US†and global†centric measures and two novel New Zealand†specific uncertainty proxies constructed using surveys of New Zealand firms and professional forecasters. We study the effect of uncertainty on a set of New Zealand macroeconomic variables. While all of the uncertainty proxies contain valuable information to understand macroeconomic fluctuations in New Zealand, a simple SVAR analysis suggests that global uncertainty is more important than domestic uncertainty in driving the New Zealand business cycle. The implications of uncertainty for monetary policy largely depend on how heightened uncertainty interacts with monetary policy objectives.

Suggested Citation

  • Lucy Greig & Amy Rice & Tugrul Vehbi & Benjamin Wong, 2018. "Measuring Uncertainty and Its Impact on a Small Open Economy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 87-98, March.
    • Handle: RePEc:bla:ausecr:v:51:y:2018:i:1:p:87-98
    DOI: 10.1111/1467-8462.12255
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    References listed on IDEAS

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    Cited by:

    1. Michael Callaghan & Enzo Cassino & Tugrul Vehbi & Benjamin Wong, 2019. "Opening the toolbox: how does the Reserve Bank analyse the world?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 82, pages 1-14, April.
    2. Gächter, Martin & Geiger, Martin & Stöckl, Sebastian, 2020. "Credit intermediation and the transmission of macro-financial uncertainty: International evidence," Journal of International Money and Finance, Elsevier, vol. 108(C).
    3. Michael Ryan, 2020. "A Narrative Approach to Creating Instruments with Unstructured and Voluminous Text: An Application to Policy Uncertainty," Working Papers in Economics 20/10, University of Waikato.
    4. Ömer YALÇINKAYA & Ali Kemal ÇELİK, 2021. "The Impact of Global Uncertainties on Economic Growth: Evidence from the US Economy (1996: Q1-2018: Q4)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 35-54, June.
    5. Michael Ryan, 2020. "An Anchor in Stormy Seas: Does Reforming Economic Institutions Reduce Uncertainty? Evidence from New Zealand," Working Papers in Economics 20/11, University of Waikato.

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