The Impact of Uncertainty Shocks on the UK Economy

March 8, 2013

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Format: Chicago

Stephanie Denis, and Prakash Kannan. The Impact of Uncertainty Shocks on the UK Economy, (USA: International Monetary Fund, 2013) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper quantifies the economic impact of uncertainty shocks in the UK using data that span the recent Great Recession. We find that uncertainty shocks have a significant impact on economic activity in the UK, depressing industrial production and GDP. The peak impact is felt fairly quickly at around 6-12 months after the shock, and becomes statistically negligible after 18 months. Interestingly, the impact of uncertainty shocks on industrial production in the UK is strikingly similar to that of the US both in terms of the shape and magnitude of the response. However, unemployment in the UK is less affected by uncertainty shocks. Finally, we find that uncertainty shocks can account for about a quarter of the decline in industrial production during the Great Recession.

Subject: Central bank policy rate, Econometric analysis, Financial crises, Financial services, GDP forecasting, Global financial crisis of 2008-2009, Industrial production, National accounts, Production, Unemployment rate, Vector autoregression

Keywords: Baseline Var model, Central bank policy rate, Consumer confidence, Economic activity, GDP forecasting, Global, Global financial crisis of 2008-2009, Industrial production, Policy rate shock, UK GDP, Uncertainty, Uncertainty shock, Unemployment in the UK, United Kingdom, VAR framework, VAR model, Vector autoregression, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/066
Stock No:

WPIEA2013066
ISBN:

9781475552690
ISSN:

1018-5941

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