What is Certain About Uncertainty?
45 Pages Posted: 7 Aug 2020 Last revised: 8 Mar 2022
Date Written: July, 2020
Researchers, policymakers, and market participants have become increasingly focused on the effects of uncertainty and risk on financial market and economic outcomes. This paper provides a comprehensive survey of the many existing measures of risk, uncertainty, and volatility. It summarizes what these measures capture, how they are constructed, and their effects, paying particular attention to large uncertainty spikes, such as those appearing concurrently with the outbreak of COVID-19. The measures are divided into three types: (1) news-based, survey- based, and econometric; (2) asset market based; and (3) Knightian uncertainty. While uncertainty has significant real and financial effects and spills over across countries, the size and persistence of these effects depend crucially on the source of uncertainty.
Keywords: global risks, Uncertainty, Volatility, Crises, Economic policy, Monetary policy, Geopolitical risk, Trade policy, Downside risk
JEL Classification: E60, G10, G15
Suggested Citation: Suggested Citation