Evaluating economic uncertainty measures for India

Abstract

ABSTRACT This paper constructs macroeconomic uncertainty (MEU) measures for India following methodology and evaluates them with widely used measures of VIX and economic policy uncertainty (EPU). We estimate a series of time-varying parametric vector autoregression (TVP-VAR) models to evaluate the relative macroeconomic effects of alternative uncertainty proxies for three uncertain periods. Results suggest that responses of macroeconomic variables following a shock to MEU produce theoretically consistent and significant results, whereas VIX and EPU do not. Further, results indicate that MEU maps episodes of identified uncertainty periods more efficiently and is less volatile than VIX and EPU measures.