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Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?

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  • Haddow, Abigail

    ()
    (Bank of England)

  • Hare, Chris

    ()
    (Bank of England)

  • Hooley, John

    ()
    (Bank of England)

  • Shakir, Tamarah

    ()
    (Bank of England)

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    Abstract

    The onset of the financial crisis in 2008 brought an end to the ‘Great Stability’ period, making prospects for UK and global economic growth appear not just weaker, but more uncertain. This elevated uncertainty is likely to have adversely affected spending decisions and contributed to the depth of the recent recession and the weakness of the recovery. While uncertainty is not directly observable, this article constructs an aggregate measure of the economic uncertainty faced by households and companies, based on a number of proxy indicators. It also provides some quantitative analysis of the impact of uncertainty on economic activity, drawing a distinction between shocks to uncertainty that are short-lived and those that are more persistent.

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    Bibliographic Info

    Article provided by Bank of England in its journal Bank of England Quarterly Bulletin.

    Volume (Year): 53 (2013)
    Issue (Month): 2 ()
    Pages: 100-109

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    Handle: RePEc:boe:qbullt:0101

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    1. Edward P. Lazear & James R. Spletzer, 2012. "Hiring, Churn and the Business Cycle," NBER Working Papers 17910, National Bureau of Economic Research, Inc.
    2. Xavier Gabaix, 2012. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 645-700.
    3. Andrew Benito, 2004. "Does job insecurity affect household consumption?," Bank of England working papers 220, Bank of England.
    4. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Restructuring and productivity growth in uk manufacturing," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(489), pages 666-694, 07.
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    6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
    7. Romer, Christina D, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(3), pages 597-624, August.
    8. Stephanie Denis & Prakash Kannan, 2013. "The Impact of Uncertainty Shocks on the UK Economy," IMF Working Papers 13/66, International Monetary Fund.
    9. Jaewoo Lee & Pau Rabanal & Damiano Sandri, 2010. "U.S. Consumption after the 2008 Crisis," IMF Staff Position Notes 2010/01, International Monetary Fund.
    10. Inkinen, Mika & Stringa, Marco & Voutsinou, Kyriaki, 2010. "Interpreting equity price movements since the start of the financial crisis," Bank of England Quarterly Bulletin, Bank of England, Bank of England, vol. 50(1), pages 24-33.
    11. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
    12. Jae Sim & Egon Zakrajsek & Simon Gilchrist, 2010. "Uncertainty, Financial Frictions, and Investment Dynamics," 2010 Meeting Papers, Society for Economic Dynamics 1285, Society for Economic Dynamics.
    13. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 1-55, February.
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    Cited by:
    1. Chowla, Shiv & Quaglietti, Lucia & Rachel, Lukasz, 2014. "How have world shocks affected the UK economy?," Bank of England Quarterly Bulletin, Bank of England, Bank of England, vol. 54(2), pages 167-179.
    2. Anderson, Gareth & Maule, Becky, 2014. "Assessing the risk to inflation from inflation expectations," Bank of England Quarterly Bulletin, Bank of England, Bank of England, vol. 54(2), pages 148-162.
    3. Bijsterbosch, Martin & Guérin, Pierre, 2013. "Characterizing very high uncertainty episodes," Economics Letters, Elsevier, Elsevier, vol. 121(2), pages 239-243.
    4. Stratford, Kate, 2013. "Nowcasting world GDP and trade using global indicators," Bank of England Quarterly Bulletin, Bank of England, Bank of England, vol. 53(3), pages 233-242.
    5. Barnett, Alina & Batten, Sandra & Chiu, Adrian & Franklin, Jeremy & Sebastia-Barriel, Maria, 2014. "The UK productivity puzzle," Bank of England Quarterly Bulletin, Bank of England, Bank of England, vol. 54(2), pages 114-128.
    6. Amélie Charles & Olivier Darné & Zakaria Moussa, 2014. "The sensitivity of Fama-French factors to economic uncertainty," Working Papers hal-01015702, HAL.
    7. Mecikovsky, Ariel & Meier, Matthias, 2014. "Do plants freeze upon uncertainty shocks?," EconStor Preprints 100662, ZBW - German National Library of Economics.
    8. Hackworth, Christopher & Radia, Amar & Roberts, Nyssa, 2013. "Understanding the MPC’s forecast performance since mid-2010," Bank of England Quarterly Bulletin, Bank of England, Bank of England, vol. 53(4), pages 336-350.
    9. Maule, Becky & Pugh, Alice, 2012. "Do inflation expectations currently pose a risk to the economy?," Bank of England Quarterly Bulletin, Bank of England, Bank of England, vol. 53(1), pages 110-121.

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