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A Critical Look at Measures of Macroeconomic Uncertainty

Author

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  • 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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    Cited by:

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    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.

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    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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