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The Distributional Effects of Economic Uncertainty

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  • Florian Huber
  • Massimiliano Marcellino
  • Tommaso Tornese

Abstract

We study the distributional implications of uncertainty shocks by developing a model that links macroeconomic aggregates to the US distribution of earnings and consumption. We find that: initially, the fraction of low-earning workers decreases, while the share of households reporting low consumption increases; at longer horizons, the fraction of low-income workers increases, but the consumption distribution reverts to its pre-shock shape. While the first phase reduces income inequality and increases consumption inequality, in the second stage income inequality rises, while the effects on consumption inequality dissipate. Finally, we introduce Functional Local Projections and show that they yield similar results.

Suggested Citation

  • Florian Huber & Massimiliano Marcellino & Tommaso Tornese, 2024. "The Distributional Effects of Economic Uncertainty," Papers 2411.12655, arXiv.org.
  • Handle: RePEc:arx:papers:2411.12655
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    References listed on IDEAS

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    1. Angeliki Theophilopoulou, 2022. "The impact of macroeconomic uncertainty on inequality: An empirical study for the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(4), pages 859-884, June.
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    4. Minsu Chang & Frank Schorfheide, 2024. "On the Effects of Monetary Policy Shocks on Income and Consumption Heterogeneity," PIER Working Paper Archive 24-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    5. Atsushi Inoue & Barbara Rossi, 2021. "A new approach to measuring economic policy shocks, with an application to conventional and unconventional monetary policy," Quantitative Economics, Econometric Society, vol. 12(4), pages 1085-1138, November.
    6. Koop, Gary & Korobilis, Dimitris, 2010. "Bayesian Multivariate Time Series Methods for Empirical Macroeconomics," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(4), pages 267-358, July.
    7. Daniel R. Kowal & David S. Matteson & David Ruppert, 2017. "A Bayesian Multivariate Functional Dynamic Linear Model," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 112(518), pages 733-744, April.
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