Macroeconomic Uncertainty: What is It, How Can We Measure It and Why Does it Matter?
10 Pages Posted: 19 Jun 2013
Date Written: June 13, 2013
The onset of the financial crisis in 2008 brought an end to the ‘Great Stability’ period, making prospects for UK and global economic growth appear not just weaker, but more uncertain. This elevated uncertainty is likely to have adversely affected spending decisions and contributed to the depth of the recent recession and the weakness of the recovery. While uncertainty is not directly observable, this article constructs an aggregate measure of the economic uncertainty faced by households and companies, based on a number of proxy indicators. It also provides some quantitative analysis of the impact of uncertainty on economic activity, drawing a distinction between shocks to uncertainty that are short-lived and those that are more persistent.
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