The Impact of Uncertainty Shocks on the UK Economy
26 Pages Posted: 30 Mar 2013
Date Written: March 2013
This paper quantifies the economic impact of uncertainty shocks in the UK using data that span the recent Great Recession. We find that uncertainty shocks have a significant impact on economic activity in the UK, depressing industrial production and GDP. The peak impact is felt fairly quickly at around 6-12 months after the shock, and becomes statistically negligible after 18 months. Interestingly, the impact of uncertainty shocks on industrial production in the UK is strikingly similar to that of the US both in terms of the shape and magnitude of the response. However, unemployment in the UK is less affected by uncertainty shocks. Finally, we find that uncertainty shocks can account for about a quarter of the decline in industrial production during the Great Recession.
Keywords: External shocks, United Kingdom, United States, Industrial production, Unemployment, Economic recession, Economic growth, Monetary policy, industrial production, Uncertainty, unemployment, recession, unemployment rate, employment
JEL Classification: F40
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