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A Critical Look at Measures of Macroeconomic Uncertainty

Author

Listed:
  • Kjellberg, David

    (Department of Economics)

  • Post, Erik

    () (Department of Economics)

Abstract

This paper takes a critical look at available proxies of uncertainty. Two questions are adressed: (i) How do we evaluate proxies given that subjective uncertainty is inherently unobservable? (ii) Is there such a thing as a general macroeconomic uncertainty? Using correlations, some narrative evidence and a factor analysis we find that disagreement and stock market volatility proxies seem to be valid measures of uncertainty whereas probability forecast measures are not. This result is reinforced when we use our proxies in standard macroeconomic applications where uncertainty is supposed to matter. Uncertainty is positively correlated with the absolute value of the GDP-gap.

Suggested Citation

  • Kjellberg, David & Post, Erik, 2007. "A Critical Look at Measures of Macroeconomic Uncertainty," Working Paper Series 2007:14, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uunewp:2007_014
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    References listed on IDEAS

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    1. Giordani, Paolo & Soderlind, Paul, 2003. "Inflation forecast uncertainty," European Economic Review, Elsevier, vol. 47(6), pages 1037-1059, December.
    2. Victor Zarnowitz & Louis A. Lambros, 1983. "Consensus and Uncertainty in Economic Prediction," NBER Working Papers 1171, National Bureau of Economic Research, Inc.
    3. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
    4. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    5. 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.
    6. Christina D. Romer, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 597-624.
    7. Johan Lyhagen, 2001. "The effect of precautionary saving on consumption in Sweden," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 673-681.
    8. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
    9. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
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    14. Chen, Andrew H. & Siems, Thomas F., 2004. "The effects of terrorism on global capital markets," European Journal of Political Economy, Elsevier, vol. 20(2), pages 349-366, June.
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    Cited by:

    1. Ohlsson, Henry, 2011. "The legacy of the Swedish gift and inheritance tax, 1884–2004," European Review of Economic History, Cambridge University Press, vol. 15(03), pages 539-569, December.
    2. Dahlberg, Matz & Lundqvist, Heléne & Mörk, Eva, 2008. "Intergovernmental grants and bureaucratic power," Working Paper Series 2008:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.

    More about this item

    Keywords

    Uncertainty; Macroeconomics; Survey Data;

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access

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