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Measuring the Response of Macroeconomic Uncertainty to Shocks
Kalvinder Shields, Nilss Olekalns, Ólan T. Henry and Chris Brooks
The Review of Economics and Statistics
Vol. 87, No. 2 (May, 2005), pp. 362-370
Published by: The MIT Press
Stable URL: http://www.jstor.org/stable/40042909
Page Count: 9
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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 size and sign bias and spillover effects. Uncertainty about inflation is a determinant of output uncertainty, whereas higher growth volatility tends to raise inflation volatility. Both inflation and growth volatility respond asymmetrically to positive and negative shocks. Negative growth and inflation shocks lead to higher and more persistent uncertainty than shocks of equal magnitude but opposite sign.
The Review of Economics and Statistics © 2005 The MIT Press