Recent Articles

Read more about our latest published articles.

Review’s Archive

Corresponding Author:
Goodness C. Aye, Department of Economics, University of Pretoria, Pretoria, South Africa

Short and Long Run Asymmetric Effects of Monetary and Fiscal Policy Uncertainty on Economic Activity in the U.S.

(pp. 83-96)
JEL classification: C32, E52, E62, F62
Keywords: Monetary Policy, Fiscal Policy, Uncertainty, Asymmetry, Nonlinearity, Short Run, Long Run

Abstract

This paper extends the ongoing literature on the macroeconomic effects of monetary and fiscal policy uncertainty. It examined the asymmetric effects of monetary and fiscal policy uncertainty on economic activity in the short and long run using U.S. monthly data from 1985M1 to 2017M2. The industrial production index is used as a measure of economic activity while the Baker et al. (2016) news based monetary and fiscal policy uncertainty were used as measures of uncertainty. To analyse asymmetry, the paper employed the nonlinear autoregressive distributed lag (NARDL) model which allows one not only to capture the effects of positive and negative uncertainty but to do so in both short and long run. Hence this paper provides new evidence of possible existence of a nonlinear and asymmetric relationship between policy uncertainty and economic activity in the short and long run. The results show that monetary and fiscal policy uncertainty share long run relationship with economic activity. Further, the effect of monetary and fiscal policy uncertainties in the long run is asymmetric. Asymmetric effect in the short run was supported only for monetary policy uncertainty. These findings have important practical and policy implications.


Read the full article

Download the article in PDF format to read and print.


Bibliography

Aye, G.C., M.W. Clance and R. Gupta (2019), “The Effectiveness of Monetary and Fiscal Policy Shocks on U.S. Inequality: The Role of Uncertainty”, Quality and Quantity, 53(1), 283-295, <https://doi.org/10.1007/s11135-018-0752-3>.
Bahmani-Oskooee, M. and M. Aftab (2017), “On the Asymmetric Effects of Exchange  Rate Volatility on Trade Flows: New Evidence from US-Malaysia Trade at the Industry Level”, Economic Modelling, 63, 86-103.
Baker, S., N. Bloom and S. Davis (2016), “Measuring Economic Policy Uncertainty”, Quarterly Journal of Economics, 131(4), 1593-1636.
Balcilar, M., R. Gupta and C. Jooste (2017), “South Africa’s Economic Response to Monetary Policy Uncertainty”, Journal of Economic Studies, 44(2), 282-293.
Bernanke, B. (1983), “Irreversibility, Uncertainty, and Cyclical Investment”, The Quarterly Journal of Economics, 98(1), 85-106.
Bloom, N. (2009), “The Impact of Uncertainty Shocks”, Econometrica, 77 (3), 623-685.
Bloom, N. (2014), “Fluctuations in Uncertainty”, Journal of Economic Per¬spectives, 28(2), 153-176.
Born, B. and J. Pfeifer (2014), “Policy Risk and the Business Cycle”, Journal of Monetary Economics, 68, 68-85.
Christiano, L.J., R. Motto and M. Rostagno (2014), “Risk Shocks”, American Economic Review, 104(1), 27-65.
Creal, D.D. and J.C. Wu (2017), “Monetary Policy Uncertainty and Economic Fluctuations”, International Economic Review, 58(4), 1317-1354.
Fernández-Villaverde, J., P. Guerron-Quintana, K. Kuester and J. Rubio-Ramirez (2015), “Fiscal Volatility Shocks and Economic Activity”, American Economic Review, 105(11), 3352-3384.
Fernández-Villaverde, J., P. Guerrón-Quintana, J.F. Rubio-Ramírez and M. Uribe, (2011), “Risk Matters: The Real Effects of Volatility Shocks”, American Economic Review, 101(6), 2530-2561.
Foerster, A. (2014), “The Asymmetric Effects of Uncertainty”, Federal Reserve Bank of Kansas, Economic Review, Third Quarter, 5-26.
Hollmayr, J. and C. Matthes, (2015), “Learning about Fiscal Policy and the Effects of Policy Uncertainty”, Journal of Economic Dynamics and Control, 59,142-162.
Johannsen, B.K. (2014), “When are the Effects of Fiscal Policy Uncertainty Large?”, Finance and Economics Discussion Series, 2014-40, Board of Governors of the Federal Reserve System (U.S.).
Jurado, K., S.C. Ludvigson and S. Ng (2015), “Measuring Uncertainty”, American Economic Review, 105 (3), 1177-1216.
Kotzé, K. (2017), “Fiscal Policy Uncertainty and Real Economic Activity in South Africa”, Contributed paper at the biennial conference of the Economic Society of South Africa, 30 August - 1 September 2017.
Mumtaz, H. and F. Zanetti (2013), “The Impact of the Volatility Monetary Policy Shocks”,  Journal of Money, Credit and Banking, 45(4),  535-558.
Murray, J. (2017), “Fiscal Policy Uncertainty and Its Macroeconomic Consequences”, Department of Economics, University of Wisconsin – La Crosse. <http://www.murraylax.org/research/fiscaluncertainty.pdf>.
Pal, D. and S.K. Mitra (2016), “Asymmetric Oil Product Pricing in India: Evidence from a Multiple Threshold Nonlinear ARDL Model”, Economic Modelling, 59, 314-328.
Pesaran, M.H., Y. Shin and R.J. Smith (2001), “Bounds Testing Approaches to the Analysis of Level Relationships”, Journal of Applied Econometrics, 16 (3), 289-326.
Pindyck, R. (1991), “Irreversibility, Uncertainty, and Investment”, Journal of Economic Literature,  29(3), 1110-1148.
Shin, Y., B. Yu and M. Greenwood-Nimmo (2014), Modelling Asymmetric Cointegration and Dynamic Multipliers in an ARDL Framework. in: R.C. Sickles, W.C. Horrace (Eds), “Festschrift in Honor of Peter Schmidt”, Springer Science and Business Media: New York.
Strobel, J. (2015), “On the Different Approaches of Measuring Uncertainty Shocks”, Economics Letters, 134, 69-72.
 

Register your account

First-time users should click on “Register your account” and enter the requested information. Upon successful registration, you will receive an e-mail with instructions to verify your registration.

Submission Guidelines

Authors’ login

Use the assigned user ID and password to login. Please, do not register again. Usernames and passwords may be changed after.

Quick search by author:
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Back to the top

Institute for International Economics
of the Genoa Chamber of Commerce


Istituto di Economia Internazionale
Camera di Commercio di Genova
Via Garibaldi, 4 (III piano) - 16124 Genova (Italy)
www.ge.camcom.gov.it