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Macroeconomic uncertainty matters: A nonlinear effect of financial volatility on real economic activity


  • Nakajima, Jouchi


A stock market volatility index is a widely-used proxy of uncertainty in the macroeconomy, and its increase is shown to dampen real economic activity. In contrast, the macroeconomic uncertainty index proposed by Jurado et al. (2015) measures the predictability of a wide range of macroeconomic indicators and thus is a comprehensive indicator of macroeconomy-wide uncertainty. This paper empirically investigates a nonlinear link between financial volatility and real economic activity depending on the level of the macroeconomic uncertainty index. Based on the United States and Japan data, empirical analysis suggests that an increase in the financial volatility lowers industrial production and business fixed investment more persistently when the macroeconomic uncertainty is higher.

Suggested Citation

  • Nakajima, Jouchi, 2022. "Macroeconomic uncertainty matters: A nonlinear effect of financial volatility on real economic activity," Discussion paper series HIAS-E-121, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
  • Handle: RePEc:hit:hiasdp:hias-e-121

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    References listed on IDEAS

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    Cited by:

    1. MORIKAWA Masayuki, 2022. "Firms' Knightian Uncertainty during the COVID-19 Crisis," Discussion papers 22089, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item


    Financial volatility; Macroeconomic uncertainty; Nonlinear effect;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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