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A Positive Effect of Uncertainty Shocks on the Economy: Is the Chase Over ?

Author

Listed:
  • Francisco Serranito
  • Julien Vauday
  • Nicolas Himounet
Abstract
How large and persistent are the effects of uncertainty shocks on the economy? Are the effects of macroeconomic uncertainty shocks different from those of financial uncertainty shocks? In the empirical literature there was a consensus on an estimated negative impactof uncertainty on macroeconomic variables. Recently, some studies identifying shocks with a novel methodology, namely the events constraint approach, find that macroeconomic uncertainty shocks may trigger an increase in the industrial production. The goal of this paperis to question this striking result. We have identified two main shortcomings in this literature that could explain the positive correlation between macroeconomic uncertainty and economic activity. We show that this method of identification can be sensitive dependingon how to identify and select the structural uncertainty shocks in a SVAR model. Our main conclusion is that the controversial result of a positive effect of macroeconomic uncertainty on economic activity does not yet seem to be proven. Whether financial or macroeconomic,there is no evidence allowing for rejection of the hypothesis that they have a negative impact on economic activity.

Suggested Citation

  • Francisco Serranito & Julien Vauday & Nicolas Himounet, 2022. "A Positive Effect of Uncertainty Shocks on the Economy: Is the Chase Over ?," EconomiX Working Papers 2022-26, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2022-26
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    References listed on IDEAS

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    More about this item

    Keywords

    Uncertainty; SVAR; Narrative Sign Restrictions; Economic Activity;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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