Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-23T06:30:10.715Z Has data issue: false hasContentIssue false
  • English
  • Français

THE ASYMMETRIC EFFECTS OF UNCERTAINTY ON MACROECONOMIC ACTIVITY

Published online by Cambridge University Press:  06 January 2016

Paul M. Jones  and
Walter Enders
Paul M. Jones
Affiliation:
Pepperdine University
Walter Enders*
Affiliation:
University of Alabama
*
Address correspondence to: Walter Enders, Department of Economics, Finance, and Legal Studies, University of Alabama, Tuscaloosa, AL 35487-0224, USA; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

We estimate a number of macroeconomic variables as logistic smooth transition autoregressive (LSTAR) processes with uncertainty as the transition variable. The notion is that the effects of increases in uncertainty should not be symmetrical with the effects of decreases in uncertainty. Nonlinear estimation allows us to answer several interesting questions left unanswered by a linear model. For a number of important macroeconomic variables, we show that (i) a positive shock to uncertainty has a greater effect than a negative shock and (ii) the effect of the uncertainty shock is highly dependent on the state of the economy. Hence, the usual linear estimates for the consequences of uncertainty are underestimated in circumstances such as the recent financial crisis.

Keywords

Nonlinear ModelsSTAR ModelsUncertainty ShocksLogistic Uncertainty
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 5 , July 2016 , pp. 1219 - 1246
Copyright
Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Abel, Andrew B. and Eberly, Janice C. (1994) A unified model of investment under uncertainty. American Economic Review 84, 1369–1384.Google Scholar
Arrow, Kenneth J. (1968) Optimal capital policy with irreversible investment. In Wolfe, J.N. (ed.), Value, Capital and Growth. Papers in Honour of Sir John Hicks, pp. 1–19. Edinburgh, UK: Edinburgh University Press.Google Scholar
Bachmann, Rüdiger, Elstner, Steffen, and Sims, Eric R. (2013) Uncertainty and economic activity: Evidence from business survey data. American Economic Journal: Macroeconomics 5, 217–249.Google Scholar
Baker, Scott R., Bloom, Nicholas, and Davis, Steven J. (2012) Measuring economic policy uncertainty. http://www.policyuncertainty.com/media/BakerBloomDavis.pdf. Accessed June 2013.Google Scholar
Becker, Gary S., Davis, Steven J., and Murphy, Kevin M. (2010) Uncertainty and the slow recovery: A recession is a terrible time to make major changes in the economic rules of the game. Wall Street Journal (4 Jan), A17.Google Scholar
Bernanke, Ben (1983) Irreversibility, uncertainty, and cyclical investment. Quarterly Journal of Economics 98, 85–106.Google Scholar
Bertola, Giuseppe and Caballero, Ricardo J. (1994) Irreversibility and aggregate investment. Review of Economic Studies 61, 223–246.Google Scholar
Bloom, Nickolas (2009) The impact of uncertainty shocks. Econometrica 77, 623–685.Google Scholar
Bloom, N., Floetotto, M., Jaimovich, N., Saporta-Eksten, I., and Terry, S. (2012) Really Uncertain Business Cycles. National Bureau of Economic Research Working Paper, number w18245.Google Scholar
Cogley, Timothy and Nason, James M. (1995) Effects of the Hodrick–Prescott filter on trend and difference stationary time series: Implications for business cycle research. Journal of Economic Dynamics and Control 19, 253–278.Google Scholar
DeMarzo, Peter M. and Sannikov, Uuliy (2006) Optimal security design and dynamic capital structure in a continuous-time agency model. Journal of Finance 61, 2681–2724.Google Scholar
Eisner, Robert and Strotz, Robert H. (1963) Determinants of Business Investment. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
Engle, Robert F. and Ng, Victor K. (1993) Measuring and testing the impact of news on volatility. Journal of Finance 48, 1749–1778.Google Scholar
Federal Open Market Committee (2008). Minutes of the Federal Open Market Committee. (April) 29–30.Google Scholar
Gilchrist, Simon, Sim, Jae W., and Zakrajšek, Egon (2014) Uncertainty, Financial Frictions, and Investment Dynamics. National Bureau of Economic Research Working Paper, number w20038.Google Scholar
Grier, K.B., Henry, Ó.T., Olekalns, N., and Shields, K. (2004) The asymmetric effects of uncertainty on inflation and output growth. Journal of Applied Econometrics 19, 551–565.Google Scholar
Hansen, Bruce (1997) Inference in TAR models. Studies in Nonlinear Dynamics and Econometrics 2, 1–14.Google Scholar
Harvey, Andrew C. and Jaeger, Albert (1993) Detrending, stylized facts and the business cycle. Journal of Applied Econometrics 8, 231–247.Google Scholar
Koop, Gary, Pesaran, M. Hashem, and Potter, Simon M. (1996) Impulse response analysis in nonlinear multivariate models. Journal of Econometrics 74, 119–147.Google Scholar
Lucas, Robert E. Jr., (1981) Optimal investment with rational expectations. In Lucas, Robert E. Jr., and Sargent, Thomas J. (eds.), Rational Expectations and Economic Practice, Vol. I, pp. 55–66. Minneapolis: University of Minnesota Press.Google Scholar
Lucas, Robert E. Jr., and Prescott, Edward C. (1971) Investment under uncertainty. Econometrica 39, 659–681.Google Scholar
Mishkin, Frederic S. (2011) Monetary Policy Strategy: Lessons From the Crisis. National Bureau of Economic Research Working Paper, number 16755.Google Scholar
Panousi, Vasia and Papanikolaou, Dimitris (2011) Investment, idiosyncratic risk and ownership. Journal of Finance 67, 1113–1148.Google Scholar
Teräsvirta, Timo (1994) Specification, estimation, and evaluation of smooth transition autoregressive models. Journal of the American Statistical Association 89, 208–218.Google Scholar
van Dijk, D., Teräsvirta, Timo, and Franses, Philip Hans (2002) Smooth transition autoregressive models–-A survey of recent developments. Econometric Reviews 21, 1–47.Google Scholar