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Components of uncertainty

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Abstract

Uncertainty is acknowledged to be a source of economic fluctuations. But, does the type of uncertainty matter for the economy's response to an uncertainty shock? This paper offers a novel identi cation strategy to disentangle different types of uncertainty. It uses machine learning techniques to classify different types of news instead of specifying a set of keywords. It is found that, depending on its source, the effects of uncertainty on macroeconomic variable may differ. I find that both good(expansionary effect) and bad (contractionary effect) types of uncertainty exist.

Suggested Citation

  • Vegard Høghaug Larsen, 2017. "Components of uncertainty," Working Paper 2017/5, Norges Bank.
  • Handle: RePEc:bno:worpap:2017_05
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2017/52017/
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    References listed on IDEAS

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    1. Vegard H. Larsen & Leif Anders Thorsrud, 2015. "The Value of News," Working Papers No 6/2015, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    2. Segal, Gill & Shaliastovich, Ivan & Yaron, Amir, 2015. "Good and bad uncertainty: Macroeconomic and financial market implications," Journal of Financial Economics, Elsevier, vol. 117(2), pages 369-397.
    3. Sydney C. Ludvigson & Sai Ma & Serena Ng, 2015. "Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?," NBER Working Papers 21803, National Bureau of Economic Research, Inc.
    4. Stephen Hansen & Michael McMahon & Andrea Prat, 2018. "Transparency and Deliberation Within the FOMC: A Computational Linguistics Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 133(2), pages 801-870.
    5. Susanto Basu & Brent Bundick, 2017. "Uncertainty Shocks in a Model of Effective Demand," Econometrica, Econometric Society, vol. 85, pages 937-958, May.
    6. Jesus Fernandez-Villaverde & Pablo Guerron-Quintana & Juan F. Rubio-Ramirez & Martin Uribe, 2011. "Risk Matters: The Real Effects of Volatility Shocks," American Economic Review, American Economic Association, vol. 101(6), pages 2530-2561, October.
    7. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1593-1636.
    8. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    9. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    10. Jon Cohen & Michelle Alexopoulos, 2009. "Uncertain Times, Uncertain Measures," 2009 Meeting Papers 1211, Society for Economic Dynamics.
    11. Jesús Fernández-Villaverde & Pablo Guerrón-Quintana & Keith Kuester & Juan Rubio-Ramírez, 2015. "Fiscal Volatility Shocks and Economic Activity," American Economic Review, American Economic Association, vol. 105(11), pages 3352-3384, November.
    12. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    13. Paul Povel & Giorgo Sertsios & Renáta Kosová & Praveen Kumar, 2016. "Boom and Gloom," Journal of Finance, American Finance Association, vol. 71(5), pages 2287-2332, October.
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    Cited by:

    1. Vegard H. Larsen & Leif Anders Thorsrud & Julia Zhulanova, 2019. "News-driven inflation expectations and information rigidities," Working Paper 2019/5, Norges Bank.
    2. Christian Pierdzioch & Rangan Gupta, 2017. "Uncertainty and Forecasts of U.S. Recessions," Working Papers 201732, University of Pretoria, Department of Economics.
    3. repec:eee:jmacro:v:57:y:2018:i:c:p:317-337 is not listed on IDEAS
    4. repec:eee:poleco:v:55:y:2018:i:c:p:511-525 is not listed on IDEAS
    5. Vegard H. Larsen & Leif Anders Thorsrud, 2017. "Asset returns, news topics, and media effects," Working Paper 2017/17, Norges Bank.
    6. 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.
    7. repec:eee:ecolet:v:171:y:2018:i:c:p:58-62 is not listed on IDEAS

    More about this item

    Keywords

    Newspaper; Topic model; Uncertainty; Business cycles; Machine learning;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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