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Understanding the Sources of Macroeconomic Uncertainty

Author

Listed:
  • Barbara Rossi
  • Tatevik Sekhposyan
  • Matthieu Soupre

Abstract

We propose a decomposition to distinguish between Knightian uncertainty (ambiguity) and risk, where the first measures the uncertainty about the probability distribution generating the data, while the second measures uncertainty about the odds of the outcomes when the probability distribution is known. We use the Survey of Professional Forecasters (SPF) density forecasts to quantify overall uncertainty as well as the evolution of the different components of uncertainty over time and investigate their importance for macroeconomic fluctuations. We also study the behavior and evolution of the various components of our decomposition in a model that features ambiguity and risk.

Suggested Citation

  • Barbara Rossi & Tatevik Sekhposyan & Matthieu Soupre, 2016. "Understanding the Sources of Macroeconomic Uncertainty," Working Papers 920, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:920
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    File URL: https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/920_0.pdf
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    References listed on IDEAS

    as
    1. Rossi, Barbara & Sekhposyan, Tatevik & Soupre, Mattheiu, 2016. "Understanding the Sources of Macroeconomic Uncertainty," CEPR Discussion Papers 11415, C.E.P.R. Discussion Papers.
    2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
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    Cited by:

    1. Barbara Rossi & Tatevik Sekhposyan & Matthieu Soupre, 2016. "Understanding the Sources of Macroeconomic Uncertainty," Working Papers 920, Barcelona Graduate School of Economics.
    2. Ferrara, L. & Istrefi, K., 2016. "Impact des chocs d’incertitude sur l’économie mondiale – Synthèse de conférence," Bulletin de la Banque de France, Banque de France, issue 206, pages 61-68.
    3. Meinen, Philipp & Roehe, Oke, 2017. "On measuring uncertainty and its impact on investment: Cross-country evidence from the euro area," European Economic Review, Elsevier, vol. 92(C), pages 161-179.
    4. Cascaldi-Garcia, Danilo & Galvao, Ana Beatriz, 2016. "News and Uncertainty Shocks," EMF Research Papers 12, Economic Modelling and Forecasting Group.
    5. Maxime Leroux & Rachidi Kotchoni & Dalibor Stevanovic, 2017. "Forecasting economic activity in data-rich environment," EconomiX Working Papers 2017-5, University of Paris Nanterre, EconomiX.
    6. repec:eee:jimfin:v:88:y:2018:i:c:p:212-227 is not listed on IDEAS
    7. Ambrocio, Gene, 2017. "The real effects of overconfidence and fundamental uncertainty shocks," Research Discussion Papers 37, Bank of Finland.
    8. Berg, Kimberly A. & Mark, Nelson C., 2018. "Measures of global uncertainty and carry-trade excess returns," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 212-227.
    9. Chuliá, Helena & Gupta, Rangan & Uribe, Jorge M. & Wohar, Mark E., 2017. "Impact of US uncertainties on emerging and mature markets: Evidence from a quantile-vector autoregressive approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 178-191.
    10. repec:eee:jmacro:v:57:y:2018:i:c:p:317-337 is not listed on IDEAS
    11. repec:eee:finmar:v:44:y:2019:i:c:p:17-30 is not listed on IDEAS
    12. repec:spr:empeco:v:53:y:2017:i:1:d:10.1007_s00181-017-1248-z is not listed on IDEAS
    13. Gupta, Rangan & Ma, Jun & Risse, Marian & Wohar, Mark E., 2018. "Common business cycles and volatilities in US states and MSAs: The role of economic uncertainty," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 317-337.
    14. repec:eee:jimfin:v:88:y:2018:i:c:p:242-259 is not listed on IDEAS

    More about this item

    Keywords

    uncertainty; risk; ambiguity; knightian uncertainty; survey of professional forecasters; predictive densities;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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