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RESEARCH PAPER NO. 870
MEASURING THE RESPONSE
OF MACROECONOMIC UNCERTAINTY TO SHOCKS
BY
KALVINDER SHIELDS, NILSS
OKEKALNS, OLAN T. HENRY & CHRIS BROOKS
FEBRUARY 2003
Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia
Recent research documents the importance
of uncertainty in determining macroeconomic
outcomes, but little is known about the
transmission of uncertainty across such
outcomes. This paper examines the response
of uncertainty about inflation and output
growth to shocks documenting statistically
significant asymmetries and spillovers.
Uncertainty about inflation is a determinant
of output uncertainty, while higher growth
volatility tends to raise inflation volatility.
Both inflation and growth volatility respond
asymmetrically to positive and negative
shocks. Negative growth shocks and positive
shocks to inflation lead to higher and more
persistent uncertainty than shocks of equal
magnitude but opposite sign.
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