Working Paper

Uncertainty Shocks and Financial Crisis Indicators

Nikolay Hristov, Markus Roth
CESifo, Munich, 2019

CESifo Working Paper No. 7839

The current paper broadens the understanding of the role played by uncertainty in the context of macroeconomic fluctuations. It focuses on the implications of uncertainty shocks for indicators that tend to precede financial crises. In an empirical analysis we show for a set of four euro area countries that negative uncertainty shocks, while boosting economic activity, are followed by unfavorable reactions of financial crisis indicators. We conclude that standard uncertainty measures contain some useful information on the potential buildup of vulnerabilities in the financial system.

CESifo Category
Fiscal Policy, Macroeconomics and Growth
Monetary Policy and International Finance
Keywords: uncertainty, crisis indicators, structural macroeconomic shocks, sign restrictions
JEL Classification: D890, C320, E440, G010