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Measuring the Response of Macroeconomic Uncertainty to Shocks

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  • Kalvinder Shields

    (The University of Melbourne)

  • Nilss Olekalns

    (The University of Melbourne)

  • Ãlan T. Henry

    (The University of Melbourne)

  • Chris Brooks

    (ISMA Centre, The University of Redding)

Abstract

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. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 87 (2005)
Issue (Month): 2 (May)
Pages: 362-370

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Handle: RePEc:tpr:restat:v:87:y:2005:i:2:p:362-370

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Cited by:
  1. Renatas Kizys & Peter Spencer, 2007. "Assessing the Relation between Equity Risk Premia and Macroeconomic Volatilities," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 140, Money Macro and Finance Research Group.
  2. Kjellberg, David & Post, Erik, 2007. "A Critical Look at Measures of Macroeconomic Uncertainty," Working Paper Series, Uppsala University, Department of Economics 2007:14, Uppsala University, Department of Economics.
  3. Yannick LE PEN & Benoît SEVI, 2008. "Volatility transmission and volatility impulse response functions in European electricity forward markets," Cahiers du CREDEN (CREDEN Working Papers), CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1 08.09.77, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
  4. Henry, Ólan & Olekalns, Nilss & Shields, Kalvinder, 2010. "Sign and phase asymmetry: News, economic activity and the stock market," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(4), pages 1083-1100, December.
  5. Ramprasad Bhar & Girijasankar Mallik, 2012. "Inflation, Inflation Uncertainty and Macroeconomic Performance in Australia," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 42(3), pages 305-318, December.
  6. Bhar, Ramprasad & Mallik, Girijasankar, 2010. "Inflation, inflation uncertainty and output growth in the USA," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 389(23), pages 5503-5510.
  7. Olan T. Henry & Nilss Olekalns & Kalvinder Shields, 2004. "Time Variation And Asymmetry In The World Price Of Covariance Risk: The Implications For International Diversification," Department of Economics - Working Papers Series, The University of Melbourne 907, The University of Melbourne.
  8. Ramprasad Bhar & Girijasankar Mallik, 2013. "Inflation uncertainty, growth uncertainty, oil prices, and output growth in the UK," Empirical Economics, Springer, Springer, vol. 45(3), pages 1333-1350, December.
  9. James D. Hamilton, 2008. "Macroeconomics and ARCH," NBER Working Papers 14151, National Bureau of Economic Research, Inc.
  10. Rahman, Sajjadur & Serletis, Apostolos, 2010. "The asymmetric effects of oil price and monetary policy shocks: A nonlinear VAR approach," Energy Economics, Elsevier, Elsevier, vol. 32(6), pages 1460-1466, November.
  11. Andreou, Elena & Matsi, Maria & Savvides, Andreas, 2013. "Stock and foreign exchange market linkages in emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 27(C), pages 248-268.
  12. Renatas Kizys & Peter Spencer, 2007. "Assessing the Relation between Equity Risk Premium and Macroeconomic Volatilities in the UK," Discussion Papers, Department of Economics, University of York 07/13, Department of Economics, University of York.
  13. Dahl, Christian M. & Iglesias, Emma M., 2009. "Volatility spill-overs in commodity spot prices: New empirical results," Economic Modelling, Elsevier, Elsevier, vol. 26(3), pages 601-607, May.
  14. Le Pen, Yannick & Sévi, Benoît, 2009. "News and correlations: an impulse response analysis," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/6804, Paris Dauphine University.

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