Components of Uncertainty

Abstract

Uncertainty is acknowledged to be a source of economic fluctuations. But, does the type of uncertainty matter for the economy’s response to an uncertainty shock? This paper offers a novel identification strategy to disentangle different types of uncertainty. It uses machine learning techniques to classify different types of news instead of specifying a set of keywords. The paper finds that, depending on its source, the effects of uncertainty on a macroeconomic variable may differ. I find that both good (expansionary effect) and bad (contractionary effect) types of uncertainty exist.