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Working Paper
What is Certain about Uncertainty?
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 ...
Working Paper
Assessing Macroeconomic Tail Risk
What drives macroeconomic tail risk? To answer this question, we borrow a definition of macroeconomic risk from Adrian et al. (2019) by studying (left-tail) percentiles of the forecast distribution of GDP growth. We use local projections (Jord, 2005) to assess how this measure of risk moves in response to economic shocks to the level of technology, monetary policy, and financial conditions. Furthermore, by studying various percentiles jointly, we study how the overall economic outlook?as characterized by the entire forecast distribution of GDP growth?shifts in response to shocks. We find that ...
Working Paper
Assessing Macroeconomic Tail Risk
What drives macroeconomic tail risk? To answer this question, we borrow a definition of macroeconomic risk from Adrian et al. (2019) by studying (left-tail) percentiles of the forecast distribution of GDP growth. We use local projections (Jord, 2005) to assess how this measure of risk moves in response to economic shocks to the level of technology, monetary policy, and financial conditions. Furthermore, by studying various percentiles jointly, we study how the overall economic outlook-as characterized by the entire forecast distribution of GDP growth-shifts in response to shocks. We find that ...
Working Paper
Inflation at Risk
We investigate how macroeconomic drivers affect the predictive inflation distribution as well as the probability that inflation will run above or below certain thresholds over the near term. This is what we refer to as Inflation-at-Risk–a measure of the tail risks to the inflation outlook. We find that the recent muted response of the conditional mean of inflation to economic conditions does not convey an adequate representation of the overall pattern of inflation dynamics. Analyzing data from the 1970s reveals ample variability in the conditional predictive distribution of inflation that ...
Discussion Paper
Is Trend Inflation at Risk of Becoming Unanchored? The Role of Inflation Expectations
Since the start of the pandemic, views about the evolution of aggregate consumer prices moved swiftly from concerns about deflation to fears about excessive inflation. It is hard to find a parallel in the history of the U.S. economy—or the global economy more generally—to this rapid reversal of risks to the inflation outlook.