from the Dallas Fed
There is signiﬁcant interest in understanding the relationship between uncertainty and economic activity. Several papers have found a negative relationship between macroeconomic uncertainty and economic activity in the data. For example, Bloom (2009) shows that unexpected increases in uncertainty, given by stock price volatility, are associated with declines in industrial production in a vector autoregression. Bekaert et al. (2013) and Pinter et al. (2013) ﬁnd similar relationships.
This paper documents there is a strong negative relationship between macroeconomic uncertainty and real GDP growth since the Great Recession. Prior to that event, the correlation between those two variables was weak, even when conditioning on quarters when the economy was in a recession. Why does the Great Recession lead to a stronger negative correlation compared to previous recessions?
[click on image to read this study]
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