Skip to main content

Measuring Uncertainty and Its Impact on the Economy


We propose a new model for measuring uncertainty and its effects on the economy, based on a large vector autoregression with stochastic volatility driven by common factors representing macroeconomic and financial uncertainty. The uncertainty measures reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Estimates with U.S. data show substantial commonality in uncertainty, with sizable effects of uncertainty on key macroeconomic and financial variables. However, historical decompositions show a limited role of uncertainty shocks in macroeconomic fluctuations.

JEL codes: E32, E44, C11, C55.
Keywords: Bayesian VARs, stochastic volatility, large datasets.


Suggested citation: Carriero, Andrea, Todd E. Clark, and Massimiliano Marcellino, 2017. “Measuring Uncertainty and Its Impact on the Economy,” Federal Reserve Bank of Cleveland Working Paper, no. 16-22R. https://doi.org/10.26509/frbc-wp-201622r.

Upcoming EventsSEE ALL

  • 08.10.21

    Cleveland Fed Conversations on Central Banking

    The Center for Inflation Research and the Federal Reserve Bank of Cleveland invite you to attend Cleveland Fed Conversations on Central Banking. The session topic will be Inflation Risk in the Short and Medium Term: US vs. Europe.

  • 10.07.21

    Inflation: Drivers and Dynamics Conference 2021

    The European Central Bank (ECB) and the Federal Reserve Bank of Cleveland’s Center for Inflation Research will host the Inflation: Drivers and Dynamics Conference 2021, which will be held virtually on October 7–8.

  • 11.17.21

    2021 Financial Stability Conference: Planning for Surprises, Learning from Crises

    The Federal Reserve Bank of Cleveland and the Office of Financial Research will host their annual financial stability conference, Financial Stability: Planning for Surprises, Learning from Crises, which will be held virtually on November 17-19, 2021.