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A Critical Look at Measures of Macroeconomic Uncertainty

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Author Info

  • Kjellberg, David

    (Department of Economics)

  • Post, Erik

    ()
    (Department of Economics)

Abstract

This paper takes a critical look at available proxies of uncertainty. Two questions are adressed: (i) How do we evaluate proxies given that subjective uncertainty is inherently unobservable? (ii) Is there such a thing as a general macroeconomic uncertainty? Using correlations, some narrative evidence and a factor analysis we find that disagreement and stock market volatility proxies seem to be valid measures of uncertainty whereas probability forecast measures are not. This result is reinforced when we use our proxies in standard macroeconomic applications where uncertainty is supposed to matter. Uncertainty is positively correlated with the absolute value of the GDP-gap.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2007:14.

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Length: 27 pages
Date of creation: 28 Feb 2007
Date of revision:
Handle: RePEc:hhs:uunewp:2007_014

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Uncertainty; Macroeconomics; Survey Data;

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References

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  1. Victor Zarnowitz & Louis A. Lambros, 1983. "Consensus and Uncertainty in Economic Prediction," NBER Working Papers 1171, National Bureau of Economic Research, Inc.
  2. Kalvinder Shields & Nilss Olekalns & Ólan T. Henry & Chris Brooks, 2003. "Measuring the Response of Macroeconomic Uncertainty to Shocks," Department of Economics - Working Papers Series 870, The University of Melbourne.
  3. Jean Sepulveda-Umanzor, 2004. "The Relation Between Macroeconomic Uncertainty And The Expected Performance Of the Economy," Econometric Society 2004 Latin American Meetings 304, Econometric Society.
  4. Zarnowitz, Victor & Lambros, Louis A, 1987. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 591-621, June.
  5. Romer, Christina D, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 597-624, August.
  6. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
  7. Giordani, Paolo & Soderlind, Paul, 2003. "Inflation forecast uncertainty," European Economic Review, Elsevier, vol. 47(6), pages 1037-1059, December.
  8. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, 05.
  9. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  10. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  11. Bomberger, William A, 1996. "Disagreement as a Measure of Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 381-92, August.
  12. Lyhagen, Johan, 1997. "The Effect of Precautionary Saving on Consumption in Sweden," Working Paper 58, National Institute of Economic Research.
  13. Chen, Andrew H. & Siems, Thomas F., 2004. "The effects of terrorism on global capital markets," European Journal of Political Economy, Elsevier, vol. 20(2), pages 349-366, June.
  14. Johan Lyhagen, 2001. "The effect of precautionary saving on consumption in Sweden," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 673-681.
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Cited by:
  1. Ohlsson, Henry, 2009. "The legacy of the Swedish gift and inheritance tax, 1884-2004," Working Paper Series, Center for Fiscal Studies 2009:13, Uppsala University, Department of Economics.
  2. Dahlberg, Matz & Lundqvist, Heléne & Mörk, Eva, 2008. "Intergovernmental grants and bureaucratic power," Working Paper Series 2008:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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