Abstract
This paper examines the impact of uncertainty shocks throughout time for the UK economy by fitting a Bayesian time - varying parameter VAR model from 1762 to 2015. Results document substantial evidence in favour of time - variation both in the response of macroeconomic fundamentals with respect to uncertainty shocks, and the contribution of these shocks macroeconomic fluctuations. Uncertainty shocks, on average, account for 30.24\% of the variance in real GDP during the Great Recession; 3.35 times the amount attributable to these shocks during the Great Depression.
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