Understanding the Sources of Macroeconomic Uncertainty

55 Pages Posted: 1 Aug 2016

See all articles by Barbara Rossi

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics

Tatevik Sekhposyan

Texas A&M University - Department of Economics

Matthieu Soupre

Universitat Pompeu Fabra

Multiple version iconThere are 2 versions of this paper

Date Written: July 2016

Abstract

We propose a decomposition to distinguish between Knightian uncertainty (ambiguity) and risk, where the first measures the uncertainty about the probability distribution generating the data, while the second measures uncertainty about the odds of the outcomes when the probability distribution is known. We use the Survey of Professional Forecasters (SPF) density forecasts to quantify overall uncertainty as well as the evolution of the different components of uncertainty over time and investigate their importance for macroeconomic fluctuations. We also study the behavior and evolution of the various components of our decomposition in a model that features ambiguity and risk.

Keywords: Ambiguity, Knightian Uncertainty, Predictive Densities., risk, Survey of Professional Forecasters, uncertainty

JEL Classification: C22, C52, C53

Suggested Citation

Rossi, Barbara and Sekhposyan, Tatevik and Soupre, Matthieu, Understanding the Sources of Macroeconomic Uncertainty (July 2016). CEPR Discussion Paper No. DP11415, Available at SSRN: https://ssrn.com/abstract=2816841

Barbara Rossi (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Tatevik Sekhposyan

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

Matthieu Soupre

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

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