NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Uncertainty Shocks as Second-Moment News Shocks

David Berger, Ian Dew-Becker, Stefano Giglio

NBER Working Paper No. 23796
Issued in September 2017
NBER Program(s):Asset Pricing Program, Economic Fluctuations and Growth Program, The Monetary Economics Program

We provide evidence on the relationship between aggregate uncertainty and the macroeconomy. Identifying uncertainty shocks using methods from the news shocks literature, the analysis finds that innovations in realized stock market volatility are robustly followed by contractions, while shocks to forward-looking uncertainty have no significant effect on the economy. Moreover, investors have historically paid large premia to hedge shocks to realized but not implied volatility. A model in which fundamental shocks are skewed left can match those facts. Aggregate volatility matters, but it is the realization of volatility, rather than uncertainty about the future, that has been associated with declines.

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Document Object Identifier (DOI): 10.3386/w23796

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