Working Paper

What is Certain about Uncertainty?


Abstract: Researchers, policymakers, and market participants have become increasingly focused on the effects of uncertainty and risk on financial market and economic outcomes. This paper provides a comprehensive survey of the many existing measures of risk, uncertainty, and volatility. It summarizes what these measures capture, how they are constructed, and their effects, paying particular attention to large uncertainty spikes, such as those appearing concurrently with the outbreak of COVID-19. The measures are divided into three types: (1) news-based, survey- based, and econometric; (2) asset market based; and (3) Knightian uncertainty. While uncertainty has significant real and financial effects and spills over across countries, the size and persistence of these effects depend crucially on the source of uncertainty.

Keywords: Global risk; Uncertainty; Volatility; Crises; Economic policy; Monetary policy; Geopolitical risk; Trade policy; Downside risk;

JEL Classification: E60; G10; G15;

https://doi.org/10.17016/IFDP.2020.1294

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File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1294.pdf

Authors

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2020-07-16

Number: 1294