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Policy uncertainty and aggregate fluctuations

Author

Listed:
  • Haroon Mumtaz
  • Paolo Surico

Abstract

This paper estimates the impact on the US economy of four types of uncertainty about (i) government spending, (ii) tax changes, (iii) public debt, and (iv) monetary policy. Uncertainty about government debt has a large and persistent effect on output, consumption, investment, consumer confidence, and business confidence. Uncertainty about tax changes also has detrimental consequences for real activity but the effect of spending and monetary policy uncertainty appears to be small. About 25% of output fluctuations are accounted for by policy uncertainty, with government debt making the largest contribution at longer horizons.

Suggested Citation

  • Haroon Mumtaz & Paolo Surico, 2018. "Policy uncertainty and aggregate fluctuations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(3), pages 319-331, April.
    • Handle: RePEc:wly:japmet:v:33:y:2018:i:3:p:319-331
    DOI: 10.1002/jae.2613
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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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