Uncertainty shocks are a major avenue of research in the quest to explain business cycles, as well as asset prices and financial crises. This column argues that three conceptually distinct types of uncertainty that are often modelled independently – ‘macro’ uncertainty about an aggregate variable such as GDP, ‘micro’ uncertainty about firms’ individual outcomes, and ‘higher-order’ uncertainty that people have about the beliefs of others – are in fact related because all three are tied to disaster risk.
Nicholas Kozeniauskas, Laura Veldkamp, 03 January 2017
Andrew Levin, 11 September 2015
The Federal Reserve is on the verge of triggering the process of monetary policy tightening. This column argues that the rationale for that policy judgement rests on faulty analytical assumptions about the labour market, inflation dynamics, the stance of monetary policy, and the balance of risks to the economic outlook. What’s more, the current opacity of the FOMC’s near-term strategy is likely to exacerbate uncertainty and hinder the effectiveness of monetary policy in fostering the goals of maximum employment and price stability.
Olivier Blanchard, Luc Laeven, Esteban Vesperoni, 03 December 2014
The events of the last five years have been a forceful reminder of the interconnections among nations. There has been renewed debate on the optimal way to combine fiscal, monetary, and financial policies to deal with international spillovers, and on the scope for coordination of such policies. This column discusses the highlights of a recent IMF conference on “Cross-Border Spillovers”, and applies the lessons to the challenges of the US and the Eurozone exiting from their unconventional monetary policies.