Uncertainty shocks and business cycles in the US: New insights from the last three decades

The Global Financial Crisis revealed the complex and potentially negative impact of uncertainty shocks on macroeconomic and financial variables. In the academic literature, there is no consensus on the transmission mechanisms of this type of shock to the real economy. Using data from the US for the 1990–2018 period, we measure the effects of financial, macroeconomic and policy uncertainty shocks on a large panel of independent variables. Our results show that the heterogeneity of uncertainty measures plays an important role in assessing the evolution of the macroeconomic environment. In particular, high financial uncertainty disturbs financing conditions as the risk premium increases and pushes both households to raise savings and firms to postpone investments. In contrast, the effects of macroeconomic uncertainty on precautionary savings and policy uncertainty on risk premiums are mostly insignificant, suggesting that there is a decoupling between policy uncertainty and financial market performance in the US.