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Measuring the Response of Macroeconomic Uncertainty to Shocks

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Listed:
  • Kalvinder Shields
  • Nilss Olekalns
  • Ólan T. Henry
  • Chris Brooks

Abstract

Recent research documents the importance of uncertainty in determining macroeconomic outcomes, but little is known about the transmission of uncertainty across such outcomes. This paper examines the response of uncertainty about inflation and output growth to shocks documenting statistically significant asymmetries and spillovers. Uncertainty about inflation is a determinant of output uncertainty, while higher growth volatility tends to raise inflation volatility. Both inflation and growth volatility respond asymmetrically to positive and negative shocks. Negative growth shocks and positive shocks to inflation lead to higher and more persistent uncertainty than shocks of equal magnitude but opposite sign. Keywords: Asymmetry, Inflation, Output Growth, Variance Impulse Response Functions

Suggested Citation

  • Kalvinder Shields & Nilss Olekalns & Ólan T. Henry & Chris Brooks, 2003. "Measuring the Response of Macroeconomic Uncertainty to Shocks," Department of Economics - Working Papers Series 870, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:870
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetry; Inflation; Output Growth; Variance Impulse Response Functions;
    All these keywords.

    JEL classification:

    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other

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