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Measuring Uncertainty and Its Impact on the Economy

Author

Listed:
  • Andrea Carriero

    (Queen Mary University of London)

  • Todd E. Clark

    (Federal Reserve Bank of Cleveland)

  • Massimiliano Marcellino

    (Bocconi University, IGIER, and CEPR)

Abstract

We propose a new model for measuring uncertainty and its effects on the economy, based on a large vector autoregression with stochastic volatility driven by common factors representing macroeconomic and financial uncertainty. The uncertainty measures reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Estimates with U.S. data show substantial commonality in uncertainty, with sizable effects of uncertainty on key macroeconomic and financial variables. However, historical decompositions show a limited role of uncertainty shocks in macroeconomic fluctuations.

Suggested Citation

  • Andrea Carriero & Todd E. Clark & Massimiliano Marcellino, 2018. "Measuring Uncertainty and Its Impact on the Economy," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 799-815, December.
    • Handle: RePEc:tpr:restat:v:100:y:2018:i:5:p:799-815
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest_a_00693
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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