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Uncertainty Fluctuations: Measures, Effects and Macroeconomic Policy Challenges

Author

Listed:
  • Laurent Ferrara
  • Stéphane Lhuissier
  • Fabien Tripier

Abstract

“The outlook is subject to considerable uncertainty from multiple sources, and dealing with these uncertainties is an important feature of policymaking.” Janet L. Yellen, Chair of the Board of Governors of the Federal Reserve System, speech “Inflation, Uncertainty, and Monetary Policy” given the 26 September 2017. There has been a strong focus in recent policy debates, on the various types of uncertainty in the global economy from economic policy uncertainty to financial volatility. This Policy Brief presents the key challenges raised by this phenomena: How to measure uncertainty? Through which channels does uncertainty impact the economy? What are the implications of uncertainty for policy makers? We show evidence from the literature that uncertainty has adverse effects on the economic activity and draw three lessons for policy-makers facing increasing uncertainties. First, macroeconomic policies have a direct role to play in stabilizing policy-related uncertainty. Second, financial uncertainty should be modulated through financial regulation. Third, the effectiveness of economic stabilization policies depends on the state of uncertainty and should be adapted accordingly.

Suggested Citation

  • Laurent Ferrara & Stéphane Lhuissier & Fabien Tripier, 2017. "Uncertainty Fluctuations: Measures, Effects and Macroeconomic Policy Challenges," CEPII Policy Brief 2017-20, CEPII research center.
  • Handle: RePEc:cii:cepipb:2017-20
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ömer YALÇINKAYA & Muhammet DAŞTAN, 2020. "Effects of Global Economic, Political and Geopolitical Uncertainties on the Turkish Economy: A SVAR Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 97-116, March.
    2. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.
    3. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.
    4. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.
    5. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.
    6. Laurent FERRARA & Stéphane LHUISSIER & Fabien TRIPIER, 2018. "Uncertainty and macroeconomics: transmission channels and policy implications," Rue de la Banque, Banque de France, issue 61, April.
    7. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667097, HAL.

    More about this item

    Keywords

    Uncertainty; Risk; Business Cycles; Monetary Policy; Fiscal Policy; Structural VAR;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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