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Measuring the Response of Macroeconomic Uncertainty to Shocks

Author

Listed:
  • Kalvinder Shields

    (The University of Melbourne)

  • Nilss Olekalns

    (The University of Melbourne)

  • Ãlan T. Henry

    (The University of Melbourne)

  • Chris Brooks

    (ISMA Centre, The University of Redding)

Abstract

Recent 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 size and sign bias and spillover effects. Uncertainty about inflation is a determinant of output uncertainty, whereas higher growth volatility tends to raise inflation volatility. Both inflation and growth volatility respond asymmetrically to positive and negative shocks. Negative growth and inflation shocks lead to higher and more persistent uncertainty than shocks of equal magnitude but opposite sign. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • 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.
    • Handle: RePEc:tpr:restat:v:87:y:2005:i:2:p:362-370
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    JEL classification:

    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other

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