UNCERTAINTY, ANTICIPATION AND MACROECONOMIC FLUCTUATIONS

Abstract

This paper examines the effects of anticipated and unanticipated uncertainty on macroeconomic fluctuations and investigates the optimal macroeconomic policy portfolio. Our empirical findings indicate that both anticipated and unanticipated uncertainty shocks result in a reduction in gross corporate output, while the negative impact of the former is relatively smaller. By developing a multi-sector DSGE model, we further find that anticipated uncertainty shocks lead to a relatively smaller rise in the risk premium for corporate lending, and a smaller decrease of corporate lending, investment, and output. The policy analysis reveals that monetary policy can effectively dampen the fluctuations of macroeconomic variables like output, but its impact on financial variables such as risk premiums and asset prices is limited. On the other hand, macroprudential policy can directly tackle the root causes of uncertainty shocks and alleviate their adverse effects. The combination of these two policies facilitates a balance between the policy objectives of managing systemic risks and mitigating macroeconomic fluctuations.