Measuring the Response of Macroeconomic Uncertainty to Shocks
AbstractRecent 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 asymmetries and spillovers. Uncertainty about inflation is a determinant of output uncertainty, while higher growth volatility tends to raise inflation volatility. Both inflation and growth volatility respond asymmetrically to positive and negative shocks. Negative growth shocks and positive shocks to inflation lead to higher and more persistent uncertainty than shocks of equal magnitude but opposite sign. Keywords: Asymmetry, Inflation, Output Growth, Variance Impulse Response Functions
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 870.
Length: 20 pages
Date of creation: 2003
Date of revision:
Contact details of provider:
Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
Phone: +61 3 8344 5289
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
More information through EDIRC
Asymmetry; Inflation; Output Growth; Variance Impulse Response Functions;
Other versions of this item:
- Kalvinder Shields & Nilss Olekalns & Ãlan T. Henry & Chris Brooks, 2005. "Measuring the Response of Macroeconomic Uncertainty to Shocks," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 362-370, May.
- E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dennis W. Jansen, 1989. "Does inflation uncertainty affect output growth? Further evidence," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 43-54.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 817-44.
- Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- HAFNER, Christian M. & HERWARTZ, Helmut, 1998.
"Volatility impulse response functions for multivariate GARCH models,"
CORE Discussion Papers
1998047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- HAFNER, Christian & HERWARTZ, Helmut, 2001. "Volatility impulse response functions for multivariate GARCH models," CORE Discussion Papers 2001039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Lee, Kevin C. & Pesaran, M. Hashem, 1993. "Persistence profiles and business cycle fluctuations in a disaggregated model of U.K. output growth," Ricerche Economiche, Elsevier, vol. 47(3), pages 293-322, September.
- Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
- Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
- Ólan T. Henry & Nilss Olekalns, 2002.
"The Effect of Recessions on the Relationship between Output Variability and Growth,"
Southern Economic Journal,
Southern Economic Association, vol. 68(3), pages 683-692, January.
- Henry, O.T. & Olekalns, N., 2000. "The Effect of Recessions on the Relationship between Output Variability and Growth," Department of Economics - Working Papers Series 745, The University of Melbourne.
- Pesaran, M.H. & Shin, Y., 1993.
"Cointegration and Speed of Convergence to Equilibrium,"
Cambridge Working Papers in Economics
9311, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
- Shields, KalvInder & Kevin B Grier & Olan T Henry & Nilss Olekalns, 2003.
"The Asymmetric Effects of Uncertainty on Inflation and Output Growth,"
Royal Economic Society Annual Conference 2003
187, Royal Economic Society.
- Kevin B. Grier & �lan T. Henry & Nilss Olekalns & Kalvinder Shields, 2004. "The asymmetric effects of uncertainty on inflation and output growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(5), pages 551-565.
- Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
- Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
- Weiss, Andrew A., 1986. "Asymptotic Theory for ARCH Models: Estimation and Testing," Econometric Theory, Cambridge University Press, vol. 2(01), pages 107-131, April.
- Ramey, Garey & Ramey, Valerie A, 1995.
"Cross-Country Evidence on the Link between Volatility and Growth,"
American Economic Review,
American Economic Association, vol. 85(5), pages 1138-51, December.
- Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990.
"Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?,"
8905, Michigan State - Econometrics and Economic Theory.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- Caporale, Tony & McKiernan, Barbara, 1996. "The Relationship between Output Variability and Growth: Evidence from Post War UK Data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(2), pages 229-36, May.
- Cukierman, Alex & Wachtel, Paul, 1979. "Differential Inflationary Expectations and the Variability of the Rate of Inflation: Theory and Evidence," American Economic Review, American Economic Association, vol. 69(4), pages 595-609, September.
- Taylor, John B., 1981. "On the relation between the variability of inflation and the average inflation rate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 57-85, January.
- Hayford, Marc D., 2000. "Inflation Uncertainty, Unemployment Uncertainty and Economic Activity," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 315-329, April.
- repec:mop:credwp:08.09.77 is not listed on IDEAS
- Dahl, Christian M. & Iglesias, Emma M., 2009. "Volatility spill-overs in commodity spot prices: New empirical results," Economic Modelling, Elsevier, vol. 26(3), pages 601-607, May.
- Rahman, Sajjadur & Serletis, Apostolos, 2010. "The asymmetric effects of oil price and monetary policy shocks: A nonlinear VAR approach," Energy Economics, Elsevier, vol. 32(6), pages 1460-1466, November.
- 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 907, The University of Melbourne.
- Renatas Kizys & Peter Spencer, 2007. "Assessing the Relation between Equity Risk Premia and Macroeconomic Volatilities," Money Macro and Finance (MMF) Research Group Conference 2006 140, Money Macro and Finance Research Group.
- Elena Andreou & Maria Matsi & Andreas Savvides, 2013.
"Stock and Foreign Exchange Market Linkages in Emerging Economies,"
University of Cyprus Working Papers in Economics
01-2013, University of Cyprus Department of Economics.
- 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, vol. 27(C), pages 248-268.
- Renatas Kizys & Peter Spencer, 2007. "Assessing the Relation between Equity Risk Premium and Macroeconomic Volatilities in the UK," Discussion Papers 07/13, Department of Economics, University of York.
- 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, vol. 42(3), pages 305-318, December.
- Le Pen, Yannick & Sévi, Benoît, 2009. "News and correlations: an impulse response analysis," Economics Papers from University Paris Dauphine 123456789/6804, Paris Dauphine University.
- James D. Hamilton, 2008. "Macroeconomics and ARCH," NBER Working Papers 14151, National Bureau of Economic Research, Inc.
- Kjellberg, David & Post, Erik, 2007. "A Critical Look at Measures of Macroeconomic Uncertainty," Working Paper Series 2007:14, Uppsala University, Department of Economics.
- Le Pen, Yannick & Sévi, Benoît, 2010.
"Volatility transmission and volatility impulse response functions in European electricity forward markets,"
Elsevier, vol. 32(4), pages 758-770, July.
- Sévi, Benoît & Le Pen, Yannick, 2010. "Volatility transmission and volatility impulse response functions in European electricity forward markets," Economics Papers from University Paris Dauphine 123456789/5450, Paris Dauphine University.
- Henry, Ólan & Olekalns, Nilss & Shields, Kalvinder, 2010. "Sign and phase asymmetry: News, economic activity and the stock market," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1083-1100, December.
- Bhar, Ramprasad & Mallik, Girijasankar, 2010. "Inflation, inflation uncertainty and output growth in the USA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(23), pages 5503-5510.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marisa Cerantola).
If references are entirely missing, you can add them using this form.