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DIMENSIONS OF MACROECONOMIC UNCERTAINTY: A COMMON FACTOR ANALYSIS
Author(s) -
Henzel Steffen R.,
Rengel Malte
Publication year - 2017
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12422
Subject(s) - economics , business cycle , commodity , dynamic factor , econometrics , financial crisis , oil price , aggregate (composite) , factor analysis , construct (python library) , macroeconomics , financial economics , monetary economics , finance , computer science , materials science , composite material , programming language
Uncertainty about the future course of the economy is a potential driver of aggregate fluctuations. To identify the distinct dimensions of uncertainty in the macroeconomy, we construct a large dataset covering all types of economic uncertainty. We then identify two fundamental factors that account for the common dynamics in this dataset. These factors are interpreted as macroeconomic uncertainty. The first factor captures business cycle uncertainty, while the second factor represents oil and commodity price uncertainty. While both types of uncertainty generate a decline in output, time‐varying oil and commodity price uncertainty is more important for fluctuations in real activity. However, nonlinearities seem to amplify the effect of business cycle uncertainty during the global financial crisis. ( JEL C32, C38, E32)