Journal Article

The asymmetric effects of uncertainty.

Abstract: Recovery from the recent financial crisis has been sluggish by historical standards, and employment growth has been similarly disappointing. Three periods of heightened economic uncertainty?the European sovereign debt crisis, the U.S. debt ceiling crisis, and, to a lesser extent, 2013's brief \\"taper tantrum\\"?may have contributed to this lackluster response. Foerster introduces a statistical model to analyze spikes in stock market volatility during these periods and thus quantify uncertainty's influence. He finds that uncertainty has asymmetric effects, with large increases in uncertainty affecting growth more than large decreases. The results suggest that temporary spikes in uncertainty following the financial crisis may have had persistent economic effects, leading to an anemic recovery and substantial cumulative employment losses across industries.

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Review

Publication Date: 2014

Issue: Q III

Pages: 5-26