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Henzel, Steffen / Rengel, Malte

Dimensions of macroeconomic uncertainty: A common factor analysis

Dimensions of macroeconomic uncertainty: A common factor analysis In the current literature uncertainty about the future course of the economy is identified as a possible driver of business cycle fluctuations. In fact, uncertainty surrounds the movements of all economic variables which gives rise to a monitoring problem. We identify the different dimensions of uncertainty in the macroeconomy. To this end, we construct a large dataset covering all forms of economic uncertainty and unravel the fundamental factors that account for the common dynamics therein. These common factors are interpreted as macroeconomic uncertainty. Our results show that the first factor captures business cycle uncertainty while the second factor is identified as oil and commodity price uncertainty. Finally, we demonstrate that a distinction between both types of macroeconomic uncertainty is essential since they have rather different implications for economic activity.


Ifo Working Paper No. 167

Publisher: Ifo Institute, Munich, 2013

Keywords: Macroeconomic uncertainty, factor model, factor-augmented VAR, aggregate fluctuation.

JEL Classification:
[C320] Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
[C380] Multiple or Simultaneous Equation Models: Classification Methods; Cluster Analysis; Factor Models
[E320] Business Fluctuations; Cycles

Article number: 12022013167000

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