Impact Of Uncertainty Shocks Research Articles

Impact of Uncertainty Shocks on Income and Wealth Inequality

AbstractWe analyze the distributional consequences of uncertainty shocks in the U.S. economy. While their impact on income inequality appears marginal when measured by a single statistic, there are important variations: inequality between the rich and middle‐income groups decreases, while inequality between the middle and poor‐income groups increases significantly. Additionally, uncertainty shocks increase labor income inequality through higher unemployment rates but simultaneously decrease nonlabor income inequality by reducing business and interest income. Uncertainty shocks reduce disposable income inequality, demonstrating the role of redistribution policy. Finally, they tend to reduce wealth inequality, mainly due to their adverse impact on financial asset prices, predominantly owned by wealthy households.

The impact of uncertainty shocks on energy transition metal prices

We study whether uncertainty shocks are transmitted to energy transition metal (ETM) prices. Using a quantile vector autoregression model, we assess the impact on ETM price changes of shocks arising from economic policy uncertainty, climate policy uncertainty, geopolitical risk, financial market uncertainty, and oil price uncertainty. We document that the impact of uncertainty is U-shaped across ETM price quantiles, with modest effects in the intermediate quantiles and stronger impacts in the extreme, but mainly upper, quantiles. Climate policy uncertainty and geopolitical risk are the main uncertainty drivers in the extreme quantiles, while financial- and oil-related uncertainties have more pervasive effects in the intermediate quantiles. This evidence has implications for policymakers regarding the implementation cost of transition policies that generate uncertainties, and for investors in ETM futures markets regarding diversification and tail risk management decisions.

Impact of Uncertainty Shocks on Income and Wealth Inequality

Impact of Uncertainty Shocks on Income and Wealth Inequality

The impact of uncertainty shocks on state-level employment

Using U.S. data over the period 1960Q3–2019Q4 we estimate a structural factor-augmented vector autoregressive model and find that a one standard deviation shock to macroeconomic uncertainty generates declines in state-level employment growth that range from -0.02 to -0.12 percentage points at their peak negative response. Cross-sectional regressions show that industry mix is an important channel through which uncertainty shocks affect employment growth. In particular, a state with a larger manufacturing sector experiences a larger decline in employment growth.

Time-varying effect of uncertainty shocks on unemployment

We examine the dynamic effects of uncertainty shocks on unemployment during recessions in the US. We estimate a Bayesian time-varying parameter structural vector autoregression. We analyze how the impact of uncertainty shocks on U.S. unemployment changes over time. We find that uncertainty shocks have both higher unit impact and higher total effect on unemployment during the Great Recession compared to those of previous recessions. Different characteristics of the Great Recession amplify the effect of uncertainty on unemployment. Two channels distinguish the Great Recession from other recessions: the federal funds rate hitting the zero lower bound and financial frictions. We find that these factors are significant determinants of the time-varying relationship between unemployment and uncertainty. Robustness analyses with alternative measures of uncertainty and alternative empirical specifications validate the results of the paper. • Uncertainty significantly affects US unemployment. • The effect of uncertainty on unemployment varies over time. • The effect is substantially higher during the Great Recession. • The zero lower bound and financial frictions are among the causes of time-varying effect.

The Impact of Uncertainty Shocks on State-Level Employment

The Impact of Uncertainty Shocks on State-Level Employment

On the aggregate effects of global uncertainty: Evidence from an emerging economy

AbstractThis 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.

The Effectiveness of China's Fiscal and Monetary Policy and the Impact of Uncertainty Shocks: From the Perspective of Three Industries

Under the influence of major random events such as US-China trade dispute and the coronavirus (COVID-19) outbreak, the uncertainty of macroeconomic regulation has also risen significantly. Then, what role economic policy level shocks and uncertainty shocks play in industrial regulation need to be clarified urgently. This study constructs a large-scale benchmark VAR model including fiscal and monetary policy and three-industry output and inflation, makes a detailed distinction between policy level shocks and uncertainty shocks, and describes the industrial control mechanism of economic policy from a new perspective. The main conclusions are as follows: firstly, compared with the ordinary VAR model, the benchmark VAR model has significant advantages in modeling efficiency, system stability and explanatory power, making it more suitable for describing the transmission mechanism of economic policy. Secondly, in terms of the role of policy uncertainty, its influence sometimes even exceeds the level impact, but in most cases, it is manifested as suppressing the output of the three industries, and the impact on industrial inflation is also dual at the same time. It shows that policy uncertainty is prone to adverse effects, and policy authorities should be more cautious in its use. Finally, from perspective of the adjustment of the three industries, tax and fee reduction are a relatively dominant means to optimize the output of the three industries, while in terms of maintaining price stability, the steady interest rate regulation is more efficient.

The impact of uncertainty shocks in South Africa: The role of financial regimes

AbstractThis article examines the connection between economic uncertainty and financial market conditions in South Africa, documenting that the macroeconomic implications of an uncertainty shock differ across financial regimes. A non‐linear VAR is estimated where uncertainty is captured by the average volatility of structural shocks in the economy, and the transmission mechanism is characterized by two distinct financial regimes (i.e., financially stressful vs. normal periods). We find that while the deterioration of output following an uncertainty shock is much more prominent during normal periods than during stressful periods, it is much more persistent during stressful financial times. The share of output variance explained by the volatility shocks in normal financial times is more than double the share in stressful times. Uncertainty shocks are found to be inflationary in both regimes, with the impact being larger in the stress regime. While our estimates reveal that financial frictions do not amplify the impact of uncertainty on real output, it does increase the impact on prices.

The level effect and volatility effect of uncertainty shocks in China

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.

Macroeconomic implications of uncertainty in South Africa

Aim: This article explores the extent to which economic policy uncertainty (EPU) influences selected macroeconomic variables in South Africa (SA). Methods: To this end, I construct a constant parameter vector autoregressive (VAR) model and a time-varying parameter (TVP) VAR model, where the latter model evaluates if the impact of uncertainty on the macroeconomic variables has changed over time. Setting: The models are estimated using quarterly South African data over the period 1990 to 2015, which include industrial production growth, consumer price inflation, 10-year government bond yield, real effective exchange rate, and economic policy uncertainty. Cholesky ordering of the variables are imposed to recover the orthogonal shocks. Results: The results of the constant parameter VAR model suggest that an unanticipated positive shock to the uncertainty index results in a decline in industrial production and real effective exchange rate, while fostering an increase in the general price level and 10-year government bond yield. Time-varying impulse responses show that the impact of uncertainty shocks on the selected macroeconomic variables has declined systematically over time. This is perhaps intuitive as the new unanticipated information is gradually picked up by media over time and incorporated into rational agents’ decision-making. Conclusion: The transmission of a positive uncertainty shock to the real economy has time-varying implications.

The Impact of Uncertainty Shocks on the Investment of Small and Large Firms: Micro Evidence and Macro Implications

The Impact of Uncertainty Shocks on the Investment of Small and Large Firms: Micro Evidence and Macro Implications

Frequency-dependent real-time effects of uncertainty in the United States: evidence from daily data

ABSTRACT In this paper, we analyse the impact of uncertainty shocks at the daily-frequency on key macroeconomic variables for the United States. In doing so, we use a vector autoregressive (VAR) model, including the inflation rate, a real-time measure of economic activity and a measure of monetary policy as endogenous variables and decompose uncertainty effects into short, medium and long-term based on a discrete-time Fourier transformation. Aggregate results (prior to decomposition) show that an increase in economic uncertainty has a significant expansionary impact on monetary policy. However, when we decompose uncertainty into its short-, medium- and long-run components, we find that economic activity is affected negatively in a statistically significant manner to shocks in low-frequency uncertainty, while, statistically significant monetary expansion is observed under shocks to relatively high frequencies of uncertainty.

대북 불확실성 확대에 따른 한국 주택시장의 변화

대북 불확실성 확대에 따른 한국 주택시장의 변화

Time-Varying Effect of Uncertainty Shocks on Unemployment: A Note on Caggiano Castelnuovo and Groshenny (2014)

We employ a time-varying parameter VAR to examine the dynamic effect of uncertainty shocks on unemployment during different recessions. We find that the impact of uncertainty shocks during the Great Recession is significantly larger compared to previous recessions. Empirical studies should consider that economic dynamics of the Great Recession are substantially different.

The Changing Transmission of Uncertainty Shocks in the U.S.

This article investigates if the impact of uncertainty shocks on the U.S. economy has changed over time. To this end, we develop an extended factor augmented vector autoregression (VAR) model that simultaneously allows the estimation of a measure of uncertainty and its time-varying impact on a range of variables. We find that the impact of uncertainty shocks on real activity and financial variables has declined systematically over time. In contrast, the response of inflation and the short-term interest rate to this shock has remained fairly stable. Simulations from a nonlinear dynamic stochastic general equilibrium (DSGE) model suggest that these empirical results are consistent with an increase in the monetary authorities’ antiinflation stance and a “flattening” of the Phillips curve. Supplementary materials for this article are available online.

The Impact of Uncertainty Shocks on the Cross-Section of Returns

Historically, value stocks earn higher average returns than growth stocks; however, the capital asset pricing model (CAPM) cannot explain this pattern, which is called the value premium puzzle. This study shows that uncertainty shocks can explain the puzzle. Intuitively, the value of growth options increases with uncertainty. As a result, growth stocks provide a hedge against uncertainty risk and earn lower risk premiums than value stocks. An investment-based asset pricing model augmented with time-varying uncertainty accounts for both the value premium and the empirical failure of the CAPM. This study also shows that uncertainty shocks differentially affect corporate investment, depending on the book-to-market ratio. Value firms reduce their investment more severely than growth firms when uncertainty increases.

Uncertainty Shocks and the UK Economy from 1762 to 2015

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.

The Evolving Transmission of Uncertainty Shocks in the United Kingdom

This paper investigates if the impact of uncertainty shocks on the U.K. economy has changed over time. To this end, we propose an extended time-varying VAR model that simultaneously allows the estimation of a measure of uncertainty and its time-varying impact on key macroeconomic and financial variables. We find that the impact of uncertainty shocks on these variables has declined over time. The timing of the change coincides with the introduction of inflation targeting in the U.K.

The Impact of Uncertainty Shocks on the UK Economy

This paper quantifies the economic impact of uncertainty shocks in the UK using data that span the recent Great Recession. We find that uncertainty shocks have a significant impact on economic activity in the UK, depressing industrial production and GDP. The peak impact is felt fairly quickly at around 6-12 months after the shock, and becomes statistically negligible after 18 months. Interestingly, the impact of uncertainty shocks on industrial production in the UK is strikingly similar to that of the US both in terms of the shape and magnitude of the response. However, unemployment in the UK is less affected by uncertainty shocks. Finally, we find that uncertainty shocks can account for about a quarter of the decline in industrial production during the Great Recession.