Uncertainty Fluctuations: Measures, Effects and Macroeconomic Policy Challenges

Ferrara, Laurent; Lhuissier, Stéphane; Tripier, Fabien

doi:10.1007/978-3-319-79075-6_9

Cited by 15 publications

(10 citation statements)

References 75 publications

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“…where unc t is a measure of uncertainty. There exist various available measures of uncertainty in the literature, such as economic policy uncertainty, forecasts dispersion, financial volatility ... (for a review see Ferrara et al, 2017). However, we think that the Brexit uncertainty is a typical case of uncertainty generated by economic policy and thus we use the Economic Policy Uncertainty (EPU) index for the U.K. developed by Baker et al (2016).…”

Section: Econometric Methodology 21 Fama Equation: a Quantile Regresmentioning

confidence: 99%

Measuring Exchange Rate Risks During Periods of Uncertainty

Ferrara

Yapi

2020

SSRN Journal

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In this paper, we empirically look at the effects of uncertainty on risk measures for exchange rates, by focusing on two recent specific periods: the Brexit and the outbreak of the Covid-19. Based on a Fama regression extended with uncertainty measures, we forecast exchange rate in the short run through a quantile regression approach. By fitting a Skewed-Student distribution to the quantile forecasts, we put forward measures of risks for appreciation and depreciation of the expected exchange rates. We point out two interesting results. First, we show that the increase in Brexit-related uncertainty is strongly associated to higher future depreciation risks of the British Pound vs the Euro, as a mistrust towards the British economy. Second, we get that the Covid-related uncertainty is perceived as a global risk, leading to a flight-to-safety move towards the US Dollar and associated high depreciation risks for emerging currencies.

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Section: Econometric Methodology 21 Fama Equation: a Quantile Regresmentioning

confidence: 99%

Measuring Exchange Rate Risks During Periods of Uncertainty

Ferrara

Yapi

2020

SSRN Journal

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“…In the rst three-quarters investments reach their minimum and after that, when the temporary uncertainty is solved and the economic situation appears brighter, investments quickly increase. As discussed in and in Ferrara, Lhuissier, and Tripier (2018), we can motivate the overshooting pattern looking at the massive comeback of the allocation of labor and capital injected in investment projects that were previously suspended, as happened during the Great Recession. These results provide evidence of how the business activities are quicker to adapt to an uncertain framework than consumption.…”

Section: Propagation Channelsmentioning

confidence: 99%

The Asymmetric Effects of Uncertainty Shocks

Paccagnini

Colombo

2020

SSRN Journal

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This study evaluates the effects of financial uncertainty shocks in the US, investigating the role of the monetary policy stance. Estimating a nonlinear Vector Autoregressive, we find that an uncertainty shock triggers asymmetric and negative effects across the business cycle. The reactions of consumption and investments are state-dependent and drive the fluctuations of GDP. The variance of macroeconomic variables due to the shock is from four to six times larger in recessions than in normal times. A counterfactual exercise shows that the Balance Sheet-related monetary policy mitigates the persistence and the magnitude of the recessionary effects of the shock.

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“…As regards exogenous factors, evidence recently blossomed as regards the role of uncer-tainty about the future state of the economy as a driver of macroeconomic and financial fluctuations. At a macroeconomic level, the effect of uncertainty has been widely documented in the economics literature, especially with respect to the mechanism whereby it affects growth and investment, which has been extensively discussed both theoretically and empirically (see Bloom 2014, andFerrara et al 2017, for a review). Overall, studies generally agree that high uncertainty gives firms an incentive to delay investment and hiring under the irreversibility condition or fixed costs through an option value to wait (see Bernanke 1983, Bloom et al 2007, and Bloom 2009, 2014).…”

Section: Uncertainty Shocks and Network Stabilitymentioning

confidence: 99%

“…We apply this approach to a set of monthly stock markets indices for 13 major countries (the U.S., the 2 Other approaches, such as that developed by Carriero et al (2016), simultaneously estimate uncertainty measures and their impact on the economy by accounting for both financial and macroeconomic uncertainty. We also refer to Ferrara et al (2017) for a review of various uncertainty measures and how to interpret them. U.K., 7 European countries and 4 emerging markets) over the last 20 years.…”

Section: Introductionmentioning

confidence: 99%

Global financial interconnectedness: a non-linear assessment of the uncertainty channel

2021

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The role of uncertainty in the global economy is now widely recognized by policy-makers but its specific effects on the international financial system are less understood. In this paper we assess the impact of uncertainty fluctuations on the interconnectedness within the international system of equity prices. In this respect, we extend the measure of connectedness put forward by Diebold and Yilmaz ( 2009) by allowing for non-linear effects through the estimation of a non-linear Threshold VAR model whose regimes depend on the level on uncertainty. Results show that high uncertainty tends to generate more connectedness among equity indexes of a set of advanced and emerging countries. From an economic policy point of view, this result suggests that in the presence of high uncertainty, an adverse financial shock in a specific country is likely to propagate more widely and more strongly to the whole financial system. This result advocates for a close real-time monitoring of uncertainty measures.

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Uncertainty Fluctuations: Measures, Effects and Macroeconomic Policy Challenges

Cited by 15 publications

References 75 publications

Measuring Exchange Rate Risks During Periods of Uncertainty

Measuring Exchange Rate Risks During Periods of Uncertainty

The Asymmetric Effects of Uncertainty Shocks

Global financial interconnectedness: a non-linear assessment of the uncertainty channel

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