IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The Optimal Economic Uncertainty Index: A Grid Search Application

  • Pei-Tha Gan

    ()

A noteworthy characteristic of empirical studies on the economic uncertainty index is that very few published papers depend on normative analysis. Therefore, normative analysis cannot be used to refute the precision of the economic uncertainty index; the lack of precision is simply the outcome of a misspecification of a commonly used model and a complex data collection process. To overcome this shortcoming, this paper uses the optimal form of the economic uncertainty index and determines its empirical validity based on a sample of 7 countries, including 3 developed and 4 developing countries. Using a grid search optimization procedure, the findings provide some policy implications; the optimal economic uncertainty index can characterize the uncertainty level of macroeconomic conditions and serve as a guiding policy tool for improving uncertainty levels in macroeconomic conditions. The estimated response function of the optimal economic uncertainty index suggests that the exchange rate, inflation, interest rate and output are useful indicators for central banks’ decision-making and that the optimal index supports the prediction of economic uncertainty. Copyright Springer Science+Business Media New York 2014

If 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.

File URL: http://hdl.handle.net/10.1007/s10614-013-9366-y
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Society for Computational Economics in its journal Computational Economics.

Volume (Year): 43 (2014)
Issue (Month): 2 (February)
Pages: 159-182

as
in new window

Handle: RePEc:kap:compec:v:43:y:2014:i:2:p:159-182
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100248

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
  2. Rochelle M. Edge & Thomas Laubach & John C. Williams, 2007. "Welfare-maximizing monetary policy under parameter uncertainty," Working Paper Series 2007-11, Federal Reserve Bank of San Francisco.
  3. Eric Jondeau & Jean-Guillaume Sahuc, 2008. "Optimal Monetary Policy in an Estimated DSGE Model of the Euro Area with Cross-Country Heterogeneity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 23-72, June.
  4. John C. Williams & Andrew T. Levin, 2003. "Robust Monetary Policy with Competing Reference Models," Computing in Economics and Finance 2003 291, Society for Computational Economics.
  5. Joseph Atta-Mensah, 2004. "Money Demand and Economic Uncertainty," Working Papers 04-25, Bank of Canada.
  6. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
  7. Simone Casellina & Mariacristina Uberti, 2008. "Optimal Monetary Policy and Long-term Interest Rate Dynamics: Taylor Rule Extensions," Computational Economics, Society for Computational Economics, vol. 32(1), pages 183-198, September.
  8. Frank Smets, 1998. "Output gap uncertainty: does it matter for the Taylor rule?," BIS Working Papers 60, Bank for International Settlements.
  9. Laurence Ball, 1997. "Efficient Rules for Monetary Policy," NBER Working Papers 5952, National Bureau of Economic Research, Inc.
  10. Robert Neil McCauley, 2006. "Understanding monetary policy in Malaysia and Thailand: objectives, instruments and independence," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 172-198 Bank for International Settlements.
  11. P. Burger & T. Knedlik, 2004. "The Mci As A Monetary Policy Guide In A Small, Open Emerging Market Economy," South African Journal of Economics, Economic Society of South Africa, vol. 72(2), pages 365-383, 06.
  12. Apergis Nicholas, 1999. "Inflation Uncertainty and Momey Demand: Evidence from a Monetary Regime Changed and the Cases of Greece," International Economic Journal, Taylor & Francis Journals, vol. 13(2), pages 21-30.
  13. John B. Taylor, 2009. "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong," NBER Working Papers 14631, National Bureau of Economic Research, Inc.
  14. Choi, Woon Gyu & Oh, Seonghwan, 2003. " A Money Demand Function with Output Uncertainty, Monetary Uncertainty, and Financial Innovations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 685-709, October.
  15. Martin Feldstein, 2010. "What Powers for the Federal Reserve?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 134-145, March.
  16. Berument, Hakan & Nergiz Dincer, N., 2005. "Inflation and inflation uncertainty in the G-7 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 348(C), pages 371-379.
  17. David Cronin & Robert Kelly & Bernard Kennedy, 2011. "Money growth, uncertainty and macroeconomic activity: a multivariate GARCH analysis," Empirica, Springer, vol. 38(2), pages 155-167, May.
  18. Alfred Guender, 2005. "On Optimal Monetary Policy Rules and the Construction of MCIs in the Open Economy," Open Economies Review, Springer, vol. 16(2), pages 189-207, April.
  19. Serletis, Apostolos & Shahmoradi, Akbar, 2006. "Velocity And The Variability Of Money Growth: Evidence From A Varma, Garch-M Model," Macroeconomic Dynamics, Cambridge University Press, vol. 10(05), pages 652-666, November.
  20. Smets, Frank, 2003. "Maintaining price stability: how long is the medium term?," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1293-1309, September.
  21. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  22. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 579-608, July.
  23. Caplin, Andrew & Schotter, Andrew, 2008. "The Foundations of Positive and Normative Economics: A Handbook," OUP Catalogue, Oxford University Press, number 9780195328318, March.
  24. Jarkko P. Jääskelä, 2005. "Inflation, Price Level and Hybrid Rules under Inflation Uncertainty," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 141-156, 03.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:43:y:2014:i:2:p:159-182. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.