Policy uncertainty and aggregate fluctuations

Abstract

Summary This paper estimates the impact on the US economy of four types of uncertainty about (i) government spending, (ii) tax changes, (iii) public debt, and (iv) monetary policy. Uncertainty about government debt has a large and persistent effect on output, consumption, investment, consumer confidence, and business confidence. Uncertainty about tax changes also has detrimental consequences for real activity but the effect of spending and monetary policy uncertainty appears to be small. About 25% of output fluctuations are accounted for by policy uncertainty, with government debt making the largest contribution at longer horizons.

Financial regimes and uncertainty shocks

“…The model has two distinguishing features. First, aggregate uncertainty is captured directly by the average volatility of the economy's structural shocks, which is allowed to a¤ect the model's endogenous variables (Mumtaz and Theodoridis, 2012;Mumtaz and Surico, 2013;1 The real implications of …nancial disturbances are studied by Zakraišek (2009, 2012), Nolan and Thoenissen (2009), Gertler and Kiyotaki (2010), Gertler and Karadi (2011), Helbling et al (2011), Perri and Quadrini (2011), Jermann and Quadrini (2012), Meeks (2012), Liu et al (2013) among others. 2 The research on uncertainty is reviewed below and in Section 2; for the policy side of the debate, see for instance FOMC (2008) and Blanchard (2009).…”

Macroeconomic Uncertainty in South Africa

“…They find similar results to Leduc and Liu () with a demand shock like response of falling output, interest rates and inflation. Mumtaz and Surico () extended this to measures of fiscal policy uncertainty using the same methodology. They find that uncertainty about public debt sustainability, government spending and tax changes all have significant contractionary effects on GDP.…”

Economic Policy Uncertainty and Tourism Demand: Empirical Evidence from the USA

“…Amengual and Xiu, 2015;Johnson and Lee, 2014;Klößner and Sekkel, 2014;Leduc and Liu, 2016;Wang et al, 2015). Many papers have explored the uncertainty from macroeconomic perspectives (Bachmann et al, 2013;Haddow et al, 2013), the intersection of unemployment and uncertainty, (Baker et al, 2016;Colombo, 2013;Gilchrist et al, 2014;Mumtaz and Surico, 2016;Nodari, 2014) and the influence of uncertainty on stock markets (Antonakakis et al, 2013;Brogaard and Detzel, 2015;Kang and Ratti, 2013;Karnizova and Li, 2014).…”