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Uncertainty Matters: Evidence from Close Elections

Chris Redl


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book NBER International Seminar on Macroeconomics 2019, Kristin Forbes and Pierre-Olivier Gourinchas, organizers
Conference held June 27–28, 2019
Forthcoming from Elsevier, Journal of International Economics
in NBER Book Series NBER International Seminar on Macroeconomics

This paper uses a data rich environment to produce direct econometric estimates of macroeconomic and financial uncertainty for 11 advanced nations. These indices exhibit significant independent variation from popular proxies and provide a refinement of the influential work of [Jurado et al., 2015] that results in improved real-time performance. We use this new data in combination with narrative evidence to jointly identify macro uncertainty and financial shocks. Macro uncertainty shocks are identified with close elections and financial shocks with financial stress during financial crises. We find that macro uncertainty shocks matter for the majority of countries and that the real effects of macro uncertainty shocks are generally larger conditioning on close elections. These results are robust to controlling for news shocks and global uncertainty as well as a variety of shocks considered to be important drivers of the business cycle.

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Document Object Identifier (DOI): https://doi.org/10.1016/j.jinteco.2020.103296

 
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