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Containment measures implemented to curb the spread of coronavirus (COVID‐19) disrupted labour markets across the world. While several studies focus on the impact of containment measures on job losses, this paper documents the effect of containment measures (specifically variation in the strictness of these measures) on employment patterns or transitions. COVID disruption can be viewed as multiple shocks to the labour market (as against a single shock). This is important because labour income is a key driver of aggregate inequality in developing countries, and such disruption has a knock‐on effect on the achievement of the Sustainable Development Goals. Therefore, we estimate the causal relationship between coronavirus containment measures and employment dynamics in South Africa. Exploiting the timing of interviews and within individual variation, we find that containment measures impact employment transitions. Specifically, stricter containment measures have a positive effect on the transition into unemployment, and the converse is true for the transition into employment. The implication of this causal relationship for development, ongoing management of COVID‐19 and future pandemics is discussed. [ABSTRACT FROM AUTHOR]

This paper makes use of a time-varying parameter VAR (TVP-VAR) with stochastic volatility using OECD data to explore the impact of the uncertainty associated with COVID-19 stabilization shocks on inflation. The findings document that the response of inflation is primarily positive, implying that such uncertainty shocks propagate like aggregate supply shocks with the results remaining robust under alternative uncertainty shocks and inflation metrics. [ABSTRACT FROM AUTHOR]

A generalized version of the classical model of the firm under risk is proposed in order evaluate the effects of an increase in price risk on a firm's production choices where background risk is present. It is shown theoretically that in this setting, these effects are ambiguous. This purely analytical result is then tested empirically using survey data on manufacturing firms in Chile. The results indicate that an increase in price risk induces greater production levels across the entire sample, thus revealing the presence of a precautionary effect. When the sample is divided on the basis of firm size, however, evidence of significant heterogeneous effects is found. While larger firms exhibit a precautionary effect, smaller firms display a strong substitution effect that prompts them to reduce output levels. [ABSTRACT FROM AUTHOR]

We introduce a new identification strategy for uncertainty shocks to explain macroeconomic volatility in financial markets. The Chicago Board Options Exchange Volatility Index (VIX) measures the market expectations of future volatility, but traditional methods based on second-moment shocks and the time-varying volatility of the VIX often do not effectively to capture the non-Gaussian, heavy-tailed nature of asset returns. To address this, we constructed a revised VIX by fitting a double-subordinated Normal Inverse Gaussian Lévy process to S&P 500 log returns, to provide a more comprehensive measure of volatility that captures the extreme movements and heavy tails observed in financial data. Using an axiomatic framework, we developed a family of risk–reward ratios that, when computed with our revised VIX and fitted to a long-memory time series model, provide a more precise identification of uncertainty shocks in financial markets. [ABSTRACT FROM AUTHOR]

In our paper, we provide a review of the literature to identify the main transmission channels through which geopolitical risks (GPR) influence macro-financial stability. We begin by analyzing the existing measures of geopolitical tensions and uncertainty, showing that GPR impacts economic and financial uncertainty episodically, with significant but transient spikes during major geopolitical events. The review then identifies the two principal channels through which GPR affects macro-financial stability: the financial channel, operating through increased uncertainty and heightened risk aversion, leading to shifts in investment portfolio allocations and cross-border capital flows; and the real economy channel, impacting global trade, supply chains, and commodity markets. Using data from the past two to three decades, we provide graphical analyses that confirm the findings in the literature, highlighting the episodic nature of the impact of GPR. These insights underscore the need for policymakers and financial institutions to adopt event-specific approaches to effectively mitigate the adverse effects of geopolitical risks on economic and financial systems. [ABSTRACT FROM AUTHOR]

This study employs rolling quantile regression and non-parametric estimation methods, specifically Quantile-on-Quantile (QQ) and Causality-in-Quantiles (QC), to investigate the impact of uncertainty indices (Geopolitical Uncertainty (GPR), Climate Policy Uncertainty (CPU), and Economic Policy Uncertainty (EPU)) on China's agricultural commodity futures. The rolling window quantile regression coefficients vary over time, with CPU having the most significant impact on agricultural commodity futures. The empirical results from the non-parametric estimation QQ method reveal when agricultural commodities are in a prosperous market, CPU and EPU exhibit relatively strong correlation, while GPR shows weaker or insignificant correlation. According to the non-parametric estimation QC method, the evidence suggests that the second-order (variance) causality relationship is relatively stronger than the first-order (mean) causality relationship, and the first-order mean causal relationship between CPU and corn and between EPU and wheat is not significant across the entire range of quantiles. The results on Hedging Effectiveness reveal that the efficiency of uncertainty hedging is substantiated. The hedging effectiveness of EPU exhibits improvement post-COVID-19, whereas the effectiveness of GPR and CPU is more pronounced in the pre-COVID-19 period. [ABSTRACT FROM AUTHOR]

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This paper investigates the impact of US uncertainty shocks on China's macroeconomy with a focus on the dynamic response of investment. Using a structural vector autoregression (VAR) model, we find that the wait-and-see mechanism of aggregate investment in the face of heightened US uncertainty disappears in China. Robust evidence confirms that the increase in state-owned enterprises' investment in response to heightened uncertainty explains this puzzle, while private-owned enterprises' investment decreases as expected. We apply regime-dependent local projections to link uncertainty shocks with credit regimes to explore whether the impact of US uncertainty shocks on investment in China has varied over time in connection with the states of bank loans. The empirical results support a positive response of state-owned enterprises' investment to increased US uncertainty during the tightening of medium- and long-term bank loans but a negative reaction when short-term bank loans are tightening. Finally, we show that economic policy uncertainty conveying political signals leads to a decline in state-owned enterprises' investment. Overall, this paper provides richer empirical evidence on the investment-uncertainty nexus. [ABSTRACT FROM AUTHOR]

While causes and consequences of uncertainty in the US economy have attracted viable interest, the literature still lacks a consensus on several aspects. To name two matters of debate, it remains unclear whether uncertainty shocks are a source or the result of recessions and whether uncertainty shocks have adverse (or even stimulating) effects on the economy. We find that ambiguous results in these regards can be traced back to the selection of an appropriate identification strategy in structural vector autoregressive models. We find that both macroeconomic and financial uncertainty are exogenous to business cycle fluctuations and cause economic slowdowns. [ABSTRACT FROM AUTHOR]

Bad news about future economic developments have larger effects than good news. The result is obtained by means of a simple nonlinear approach based on SVAR and SVARX models. We interpret the asymmetry as arising from the uncertainty surrounding economic events whose effects are not perfectly predictable. Uncertainty generates adverse effects on the economy, amplifying the effects of bad news and mitigating the effects of good news. [ABSTRACT FROM AUTHOR]

This study proposes a new high-frequency indicator to measure economic policy uncertainty in the context of India, a large emerging market economy. Based on internet search intensity data, the proposed index tends to peak around domestic and global events associated with uncertainty that may prompt economic agents to alter their decisions to spend, save, invest and hire. Using an external instrument with structural vector autoregression (SVAR-IV) framework, we provide fresh evidence on the causal impact of uncertainty on the Indian macroeconomy. We show that surprise increases in uncertainty lead to a fall in output growth and an increase in inflation. This effect is found to be mainly driven by a fall in private investments vis-à-vis consumption indicating a dominant supply-side impact of uncertainty. Lastly, taking the case of output growth, we show that adding our uncertainty index to standard forecasting models leads to better forecasting accuracy compared to other alternate indicators of macroeconomic uncertainty. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between climate risk and climate policy uncertainty, and CO2 emissions in the US over the 2000–2022 period using a structural Factor- Augmented Vector AutoRegression (FAVAR) model with a two-step principal component analysis based on monthly observations. We employ a very recent measure to proxy for uncertainty regarding climate policy based on the Climate Policy Uncertainty Index (CPU) of Gavriilidis (2021), while Climate Risk is proxied by financial cost of natural disasters and number of deaths. We use different variables for CO2 emissions, based on total and sectoral emission (commercial, electric power, residential sector, transportation, and industrial sector). The results indicate that a significant percentage of the variance of CO2 emissions in the US, is explained by Natural Disasters Cost, which also seem to account for a significant percentage of the US Total Renewable Energy Consumption variance. Shocks to disaster costs seem to decrease all type of emissions significantly and also increase renewable energy use significantly. Natural disasters increase political disagreement among U.S. politicians, as well as, the climate policy uncertainty, highlighting the need for efficient policymaking and regulations. In further results, we find that an increase in Partisan Conflict decreases emissions and explains a significant amount of renewable energy variance. [ABSTRACT FROM AUTHOR]

We estimate a production‐based general equilibrium model featuring demand‐ and supply‐side uncertainty and an endogenous term premium. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand‐ and supply‐side uncertainty imply large contractions in real activity and an increase in term premia, but supply‐side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct endogenous risk wedges account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple after the Great Recession. [ABSTRACT FROM AUTHOR]

In this paper, we study the effects of uncertainty shocks in a quantitative framework where firms in the corporate sector are constrained by credit. Specifically, we formulate borrowing constraints as a nested function that features both earnings and capital as alternative instruments for assessing credit worthiness, in line with recent trends in corporate finance. We find that the quantitative framework that incorporates only one instrument (capital or earnings) in the borrowing constraint falls short in matching the business cycle properties of the US economy in terms of the behavior of output, inflation, and the price markup which are an essential part of the literature on uncertainty shocks. Rather, a hybrid formulation of the borrowing constraint which accounts for both capital and earnings helps us bring the results in the quantitative model closer to the data. [ABSTRACT FROM AUTHOR]

How does uncertainty affect the costs of raising finance in the bond market and via bank loans? Empirically, this paper finds that heightened uncertainty is accompanied by an increase in corporate bond spreads, whereas spreads on bank loans remain unchanged. This finding can be explained with a model that includes costly state verification and in which banks maintain long‐term relationships with borrowers and acquire information beyond what is publicly available. After an unexpected increase in uncertainty, the probability of borrower default increases. Banks leave the loan spread unchanged to maintain the relationship. In contrast, bond spreads increase because investors demand compensation for the increased default risk. [ABSTRACT FROM AUTHOR]

This article proposes a panel threshold VAR with stochastic volatility-in-mean model. The volatility process is given by the average volatility of the structural shocks affecting some selected variables and is interpreted as a measure of macroeconomic uncertainty. The posterior is approximated using an adaptive Metropolis-Within-Gibbs algorithm. We apply the method by analysing the effects of uncertainty and financial shocks in good times and financial distress in emerging economies. In our sample, we find that, under normal financial conditions, financial shocks play a slightly more pervasive role than uncertainty shocks. However, under financial stress periods, uncertainty shocks become more important than financial shocks. [ABSTRACT FROM AUTHOR]

In this paper, we argue that macroeconomic uncertainty shocks cause a persistent decline in economic activity, investment in R&D, and total factor productivity. After providing empirical evidence, we build a DSGE model with sticky prices and endogenous growth through investment in R&D. In this framework, uncertainty shocks lead to a short-term fall in demand because of precautionary savings and rising markups. The reduction in the utilised aggregate stock of R&D determines a fall in productivity, which causes a long-term reduction in the main macroeconomic aggregates. When households feature Epstein–Zin preferences, they become averse to these long-term risks affecting their consumption process (long-run risk channel), which severely exacerbates the precautionary savings motive and the overall adverse effects of uncertainty shocks. [ABSTRACT FROM AUTHOR]

This paper assesses whether the impact of monetary policy uncertainty on the U.S. economy has changed over time. Estimating a Time-Varying Parameter Vector Autoregressive model on U.S. data from 1985Q1 to 2022Q3, we find that uncertainty shocks have larger negative effects on output during the COVID-19 recession than during other periods. However, financial market variables, such as stock prices and dividends, responded more significantly to uncertainty shocks during the Asian crisis of the late 1990s, the IT bubble of the 2000s, and the Great Recession. We then develop a Dynamic Stochastic General Equilibrium model with monetary policy uncertainty. Based on the calibrated model, we conduct several counterfactual exercises to demonstrate that the effects of uncertainty shocks depend on the state of the economy, which is consistent with the empirical evidence. These findings provide new insights into the time-varying nature of the impact of economic uncertainty. [ABSTRACT FROM AUTHOR]

This study examines the role of the global financial cycle (GFCy) in the propagation of uncertainty shocks from the United States to other national economies using a large‐scale global vector autoregressive model of 33 countries. Although the dominant role of US uncertainty over global economic dynamics is established, the findings highlight the moderating role of the GFCy in the spillover effects of uncertainty shocks. The US uncertainty shocks, compared with own‐domestic uncertainty shocks, are found to have a more prominent negative impact on output during stressed market conditions, implied by low values of the GFCy, while the impact turns largely insignificant during high GFCy states. The findings provide evidence in favour of a US uncertainty spillover multiplier, suggesting that the design of monetary policy as a response to US uncertainty needs to be contingent on the state of the integrated global financial markets, captured by the GFCy. [ABSTRACT FROM AUTHOR]

This study constructs a set of regional economic uncertainty (EU) indices for the United States based on Internet search volumes. These indices shed light on EU at the regional and local levels along with national EU. Although aggregate state‐level EU is highly synchronized, idiosyncratic state EU nonetheless exhibits large variations. Similar to aggregate state‐level EU, idiosyncratic state EU is generally countercyclical. There is also a spillover effect among EU in US regions. Lastly, we show that idiosyncratic state EU foreshadows declines in local employment and output. [ABSTRACT FROM AUTHOR]

This paper empirically examines the aggregate effects of global uncertainty using monthly South African data. The empirical analysis is implemented in the context of vector autoregressions (VAR), augmented with various proxies for economic and financial indicators. The evidence shows that global uncertainty shocks are a significant source of economic fluctuations—they are estimated to significantly explain the cyclical downturn and exert negative impact on the financial and stock markets. These results are consistent with the view that uncertainty shocks are an important exogenous source of cyclical fluctuations and the reactions in the financial market play an important role in the impact of uncertainty shocks on the real economy. The evidence shows that uncertainty is important to the inflation dynamics while inflation and output co‐move negatively conditional on uncertainty shocks. [ABSTRACT FROM AUTHOR]

What has been the effect of uncertainty shocks in the U.S. economy over the last century? What are the roles of the financial channel and monetary policy channel in propagating uncertainty shocks? Our empirical strategies enable us to distinguish between the effects of uncertainty shocks on key macroeconomic and financial variables transmitted through each channel. A hundred years of data further allow us to answer these questions from a novel historical perspective. This paper finds robust evidence that financial conditions captured by both borrowing costs and the availability of credit have played a crucial role in propagating uncertainty shocks over the last century. However, heightened uncertainty does not necessarily amplify the adverse effect of financial shocks, suggesting an asymmetric interaction between uncertainty and financial shocks. Interestingly, the monetary policy stance seems to play only a minor role in propagating uncertainty shocks, which is in sharp contrast to the recent claim that binding zero-lower-bound amplifies the negative effect of uncertainty shocks. We argue that the contribution of constrained monetary policy to amplifying uncertainty shocks is largely masked by the joint concurrence of binding zero-lower-bound and tightened financial conditions. [ABSTRACT FROM AUTHOR]

The COVID-19 pandemic has affected various dimensions of the economies and societies. At this juncture, this paper examines the effects of pandemics-related uncertainty on fertility in the panel dataset of 126 countries from 1996 to 2019. For this purpose, the World Pandemics Uncertainty Indices are used to measure the pandemics-related uncertainty. The novel empirical evidence is that pandemics-related uncertainty decreases fertility rates. These results are robust to estimate different models and include various controls. We also try to explain why the rise in uncertainty during the COVID-19 pandemic has resulted in the fertility decline.

Previous studies have assumed that the volatility of exogenous shocks is constant, which can only measure the level effects of uncertain shocks. This article introduces the time-varying volatility model into a Dynamic Stochastic General Equilibrium (D.S.G.E.) model and uses the third-order perturbation method to identify and decompose the level and volatility effects of uncertainty shocks. Based on the results of empirical research in China, the effect of volatility shocks is different from that of level shocks: the effect of level shocks is direct and positive, and its impact is larger, while the effect of volatility shocks is indirect and negative, and its impact is smaller. This article also finds that the impact of uncertainty shocks will lead to economic stagnation, inflation, and the stagflation effect. [ABSTRACT FROM AUTHOR]

This paper assesses whether the impact of monetary policy uncertainty on the U.S. economy has changed over time. Estimating a Time-Varying Parameter Vector Autoregressive model on U.S. data from 1985Q1 to 2022Q3, we find that uncertainty shocks have larger negative effects on output during the COVID-19 recession than during other periods. However, financial market variables, such as stock prices and dividends, responded more significantly to uncertainty shocks during the Asian crisis of the late 1990s, the IT bubble of the 2000s, and the Great Recession. We then develop a Dynamic Stochastic General Equilibrium model with monetary policy uncertainty. Based on the calibrated model, we conduct several counterfactual exercises to demonstrate that the effects of uncertainty shocks depend on the state of the economy, which is consistent with the empirical evidence. These findings provide new insights into the time-varying nature of the impact of economic uncertainty.

In this paper, we study the effects of uncertainty shocks in a quantitative framework where firms in the corporate sector are constrained by credit. Specifically, we formulate borrowing constraints as a nested function that features both earnings and capital as alternative instruments for assessing credit worthiness, in line with recent trends in corporate finance. We find that the quantitative framework that incorporates only one instrument (capital or earnings) in the borrowing constraint falls short in matching the business cycle properties of the US economy in terms of the behavior of output, inflation, and the price markup which are an essential part of the literature on uncertainty shocks. Rather, a hybrid formulation of the borrowing constraint which accounts for both capital and earnings helps us bring the results in the quantitative model closer to the data.

We use the dispersion of the Federal Budget Balance forecasts from Consensus Economics to construct a new measure of fiscal uncertainty; constant horizon forecasts are obtained through mixture distributions. The scheme we propose has several advantages over previous uncertainty measures. First (as opposed to recent proposals), it results in a forward-looking measure, which implies that any sudden development in terms of an (un)expected fiscal stance is immediately incorporated in the series. Second, the measure is by construction a real-time one. Third, being completely model-free, it is not contaminated (inflated) by model uncertainty. Fourth, our measure does not simply track uncertainty stemming from public consumption and investment, whereas it is comprehensive in also accounting both for the critical welfare component of public expenditure and for taxes. Fifth, as opposed to uncertainty indexes which can be interpreted only dynamically, our measure has an obvious intuitive point-wise interpretation. Interestingly, the inception of the Trump administration has led to unprecedented uncertainty shocks which have demonstrably put a non-negligible brake on the slow US recovery. More generally, we show that fiscal uncertainty shocks have clear recessionary effects. Furthermore, constraints on monetary policies during the ZLB have likely strengthened the recessionary effects of fiscal uncertainty shocks. [ABSTRACT FROM AUTHOR]

Using a Markov‐switching VAR, we show that the effects of uncertainty shocks on output are four times higher in a regime of economic distress than in a tranquil regime. We then provide a structural interpretation of these facts. To do so, we develop a business cycle model in which agents are aware of the possibility of regime changes when forming expectations. The model is estimated using a Bayesian minimum distance estimator that minimizes, over the set of structural parameters, the distance between the regime‐switching VAR‐based impulse response functions and those implied by the model. Our results point to worsening credit‐market conditions that amplify shocks during distress periods. Finally, we show that the expectation effect of regime switching in financial conditions is an important component of the financial accelerator mechanism. If agents are more pessimistic about future financial conditions, then the output effects of shocks are amplified. [ABSTRACT FROM AUTHOR]

We use a dynamic factor model with time‐varying parameters and stochastic volatility to decompose the variance of exports and imports over time for 22 Organization for Economic Co‐operation and Development countries spanning the quarterly period of 1960:01–2016:04 into contributions from country‐ and region‐specific uncertainties and uncertainty common to all countries. We find that, while idiosyncratic uncertainty has a dominant role in explaining the volatility of international trade, global, country‐, and region‐specific uncertainties drive around 40% of the volatility of real exports and imports, with the impact of the latter three uncertainties rising in explanatory power during episodes of crises. Our results have important policy implications. [ABSTRACT FROM AUTHOR]

This paper investigates the effects of policy uncertainty on major macroeconomic variables in Portugal, employing a Structural Vector Autoregression (SVAR) approach. I develop an Economic Policy Uncertainty (EPU) index utilizing data from over twenty news sources, which captures key moments such as elections, budget negotiations, and various crises. In response to a rise in policy uncertainty, firms delay projects, leading to a decline in industrial output and a rise in unemployment. Consumers, in turn, reduce their non-essential spending, resulting in a gradual decline in retail sales. On the financial side, rising policy uncertainty drives down equity prices and widens credit spreads, reflecting the concerns of investors and lenders. [ABSTRACT FROM AUTHOR]

We provide novel evidence that technological news and uncertainty shocks, identified one at a time using vector autoregressive (VAR) models as in the literature, are correlated; that is, they are not truly structural. We then proceed by proposing an identification scheme to disentangle the effects of news and financial uncertainty shocks. We find that by removing financial uncertainty effects from news shocks, the positive responses of economic activity to news shocks are strengthened in the short term; and that the negative responses of activity to financial uncertainty shocks are deepened in the medium term as "good uncertainty" effects on technology are purged. [ABSTRACT FROM AUTHOR]

Precautionary pricing and increasing markups in representative‐agent DSGE models with nominal rigidities are commonly used to generate negative output effects of uncertainty shocks. We assess whether this theoretical model channel is consistent with the data. Three things stand out. First, consistent with precautionary wage setting, we find that wage markups increase after uncertainty shocks. Second, the impulse responses of price markups are largely inconsistent with the standard model, both at the aggregate as well as the industry level. Finally, and in contrast to times‐series evidence, our theoretical model robustly predicts that uncertainty shocks have a quantitatively small impact on the economy. [ABSTRACT FROM AUTHOR]

We develop a dynamic factor model with time-varying parameters and stochastic volatility, estimate it using a large panel of macroeconomic and financial data for 22 countries and decompose the variance of each variable in terms of contributions from uncertainty common to all countries ("global uncertainty"), region-specific uncertainty, and country-specific uncertainty. Among other findings, the estimates suggest that global uncertainty plays a primary role in explaining the volatility of inflation, interest rates, and stock prices, although to a varying extent over time, while all uncertainty components are found to play a nonnegligible role for real economic activity, credit, and money for most countries. for this article are available online. [ABSTRACT FROM AUTHOR]

Motivated by recent research suggesting that uncertainty and financial shocks have become the most important sources of business cycle fluctuations, we assess the relative importance of monetary policy, uncertainty, and financial shocks in explaining key macroeconomic variations. Using a Bayesian monetary structural vector autoregressive model augmented with measures of uncertainty and tightness of financial conditions, we identify monetary policy, uncertainty, and financial shocks based on a penalty function approach. We find that uncertainty shocks have become a relatively more important source of output fluctuations than traditional monetary policy shocks and financial shocks. We also find that monetary policy shocks outperform uncertainty and financial shocks in explaining inflation dynamics and that financial shocks are relatively more important than monetary policy and uncertainty shocks in explaining the swings in the stock market. However, these shocks are not the major driver of exchange rates. [ABSTRACT FROM AUTHOR]

Iran's Islamic financial system, as one of the main sectors influenced by the overflow of systemic shocks of Iran's economy based on current institutional arrangements, has been considered in this study in the form of a random dynamic general equilibrium model. By setting the real exchange rate as a sufficient statistic, this research examines the method of increasing the resilience of the economy based on Sections 8 and 9 of the General Policy of the Resistance Economy. During the implementation of the model, the weaknesses of the applied methods in this area are investigated from linear and stationary non-accidental states aspects. According to the results, the global method with static random status has the maximum capacity to optimize the maximum resistance point.

This paper evaluates the effects of high-frequency US uncertainty shocks on China's investment and bank loans through the mixed-frequency vector autoregression model. We find that time-stamped US uncertainty shocks generate partly heterogeneous impacts on China's investment and bank loans. The responses of bank loans with different maturities and private-owned enterprise investment are consistent with the theoretical results and policy operations except for the pattern of state-owned enterprise investment in the face of uncertainty shocks. By further decomposing the state-owned enterprise investment, we reveal that the injection of government investment to state-owned enterprise biases the time-varying responses of state-owned enterprise investment to US uncertainty shocks. Compared to the single-frequency approach, the mixed frequency approach produces richer economic results and insights. [ABSTRACT FROM AUTHOR]

What are the effects of beliefs, sentiment, and uncertainty, over the business cycle? To answer this question, we develop a behavioral New Keynesian macroeconomic model, in which we relax the assumption of rational expectations. Agents are, instead, boundedly rational: they have a finite-planning horizon, and they learn about the economy over time. Moreover, we allow agents to have a potentially asymmetric loss function in forecasting, which creates a direct channel for expected variances to affect the economy. In forming expectations, agents may be subject to shifts in optimism and pessimism (sentiment) and their beliefs may be influenced by their perceptions about future uncertainty. We estimate the behavioral model using Bayesian methods and exploit a large number of subjective expectation series (both point and density forecasts) at different horizons from the Survey of Professional Forecasters. We find that sentiment shocks are the key source of business cycle fluctuations. Shifts in perceived uncertainty can also affect real activity and inflation through a confidence channel, as they play an important role in belief formation. Overall, the results shed light on the importance of behavioral forces over the business cycles, and on the contribution and interaction of first-moment - sentiment - shocks versus second-moment - perceived uncertainty - shocks. [ABSTRACT FROM AUTHOR]

Global uncertainty shocks are associated with a sharp decline in global inflation, growth and interest rate. Global uncertainty shocks have more protracted, statistically significant and substantial effects on global growth, inflation and interest rate than U.S. uncertainty shocks. When controlling for domestic uncertainty, the decline in output following a rise in global uncertainty is statistically significant in each large country, except for the decline for China. For most economies, a positive shock to global uncertainty has a depressing effect on prices and official interest rates – exceptions are Brazil, Mexico and Russia, which are economies with large capital outflows during financial crises. [ABSTRACT FROM AUTHOR]

The USA in the 1930s experienced unprecedented uncertainty. Uncertainty shocks buffeted the economy during recessionary periods, but these shocks receded during the recovery periods of the Great Depression. Using vector autoregressions on monthly data for 1919–1941, I show that a one standard deviation increase in uncertainty decreased investment, GDP, industrial output, employment, hours worked, wages, and the price level. I perform a historical decomposition simulation to see how much uncertainty shocks mattered for explaining movements in major variables during the Depression. Roughly 40–70% of the simulated decline in output can be explained by uncertainty shocks in the Great Depression. [ABSTRACT FROM AUTHOR]

This article proposes a novel way to construct an index for economic policy uncertainty that does not depend on language proficiency. We use two specific features of search volume extraction on Google Trends, combine policy-relevant search queries, and construct our Google economic policy uncertainty index for nine Eastern European countries—a region in which the construction of other economic policy uncertainty indices would require good language proficiency. We illustratively show that major policy-related events are captured and find that shocks on economic policy uncertainty yield a sizable impact on macroeconomic variables. [ABSTRACT FROM AUTHOR]