Measuring Uncertainty
Kyle Jurado, Sydney C. Ludvigson, Serena Ng
American Economic Review · 2015 · Volume 105 · Issue 3
Abstract
This paper exploits a data rich environment to provide direct econometric estimates of time-varying macroeconomic uncertainty. Our estimates display significant independent variations from popular uncertainty proxies, suggesting that much of the variation in the proxies is not driven by uncertainty. Quantitatively important uncertainty episodes appear far more infrequently than indicated by popular uncertainty proxies, but when they do occur, they are larger, more persistent, and are more correlated with real activity. Our estimates provide a benchmark to evaluate theories for which uncertainty shocks play a role in business cycles. (JEL C53, D81, E32, G12, G35, L25)
Keywords
Forecasting Models, Simulation Methods, Criteria for Decision-Making under Risk and Uncertainty, Business Fluctuations, Cycles, Asset Pricing, Trading Volume, Bond Interest Rates, Payout Policy, Firm Performance: Size, Diversification, and Scope
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