Department of Economics and Business - Universitat Pompeu Fabra

Title:: Understanding the sources of macroeconomic uncertainty
Authors:: Barbara Rossi, Tatevik Sekhposyan and Matthieu Soupre
Date:: May 2016 (Revised: December 2018)
Abstract:: We propose a decomposition to distinguish between Knightian uncertainty (ambiguity) and risk, where the Örst 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 di§erent components of uncertainty over time and investigate their importance for macroeconomic áuctuations. We also study the behavior and evolution of the various components of our decomposition in a model that features ambiguity and risk.
Keywords:: Uncertainty, Risk, Ambiguity, Knightian Uncertainty, Survey of Professional Forecasters, Predictive Densities.
JEL codes:: C22, C52, C53.
Area of Research:: Macroeconomics and International Economics / Statistics, Econometrics and Quantitative Methods

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