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Indicators of uncertainty: a brief user’s guide

Author

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  • Luca Rossi

    (Banca d'Italia)

Abstract

This work examines the benefits and risks of using available classes of uncertainty indexes for policy purposes, clustered in three broad categories: survey-based, model-based, and news-based. In both policy discussions and the academic literature news-based indexes are the ones that have recently gained the most attention. We argue that the reasons behind this are their intuitiveness, transparency and real-time characteristics. The main trouble with these indexes, as they are constructed today, is their noisiness. We then suggest that, for policy purposes, it would be better to disregard very high frequency movements in the series. Finally, we highlight that well-developed probabilistic surveys still represent a hard-to-beat benchmark when one is interested in uncertainty concerning specific variables as opposed to more abstract concepts such as Economic Policy Uncertainty.

Suggested Citation

  • Luca Rossi, 2020. "Indicators of uncertainty: a brief user’s guide," Questioni di Economia e Finanza (Occasional Papers) 564, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_564_20
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2020-0564/QEF_564_20.pdf
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    More about this item

    Keywords

    uncertainty; filtering; economic surveys; news;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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