Essays in Uncertainty and Volatility
AuthorTurnip, Guido Theoputra
Document TypePhD thesis
Access StatusOpen Access
© 2020 Guido Theoputra Turnip
This thesis consists of three independent essays studying uncertainty and volatility in the macroeconomy using empirical evidence. In chapter 2, we study the role of the uncertainty of real and financial shocks with different persistence in the business cycle. We use survey data from the Survey of Professional Forecasters as a direct measure of expectations both to identify the real and financial shocks with different persistence and to measure their associated uncertainty. We find that the uncertainty of long-lived transitory real and financial shocks to have the most economically significant impact on output. However, real and financial uncertainty affect output in different directions. While an increase in financial uncertainty is mainly recessionary, an increase in real uncertainty is expansionary. Both real and financial uncertainty are also endogenous to first-moment shocks. We further find that uncertainty responds asymmetrically to first-moment shocks with recessionary shocks triggering stronger uncertainty responses. Finally, uncertainty has a larger role in transmitting long-lived transitory financial shocks compared to real shocks. In chapter 3, we study the impact of commodity price uncertainty on small commodity exporters using Australia, Canada, New Zealand and Norway as sample countries. We measure commodity price uncertainty through the volatility of the shocks to the respective commodity price index of each country. We find that a commodity price uncertainty shock lowers output in all countries. We find little evidence that commodity price shocks are transmitted to output growth through the level of commodity prices. The resulting increase in domestic uncertainty however may prevent a deeper recession through the real option channel. Finally, despite the positive responses of inflation presenting a trade-off for monetary policy, lowering the interest rate can still be effective in speeding up output recovery. Lastly, the lower output growth can be explained by either lower domestic consumption and investments for Australia, New Zealand and Norway or lower exports for Canada. In chapter 4, we use changes in the volatility of macroeconomic shocks in the form of Markov-switching heteroskedasticity to test various restrictions used to identify monetary policy and exchange rate shocks in small-open economy structural vector autoregressions. Using Australian, Canadian and New Zealand data, we find that restrictions that allow for simultaneity between the interest rate and the real exchange rate without restricting the long-run impact of monetary policy shocks on the long-run real exchange rate to be most supported by the data. Impulse responses to monetary policy and exchange rate shocks obtained from such restrictions are consistent with theoretical predictions.
KeywordsUncertainty; Volatility; Expectations; Business Cycle; SVAR; Commodity Prices; Small-Open Economy; Identification via Heteroskedasticity
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- Economics - Theses