Policy uncertainty and aggregate fluctuations |
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| Authors: | Haroon Mumtaz Paolo Surico |
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| Institution: | 1. School of Economics and Finance, Queen Mary University of London, London, UK;2. Economics Department, London Business School, London, UK;3. CEPR, London, UK |
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| Abstract: | This paper estimates the impact on the US economy of four types of uncertainty about (i) government spending, (ii) tax changes, (iii) public debt, and (iv) monetary policy. Uncertainty about government debt has a large and persistent effect on output, consumption, investment, consumer confidence, and business confidence. Uncertainty about tax changes also has detrimental consequences for real activity but the effect of spending and monetary policy uncertainty appears to be small. About 25% of output fluctuations are accounted for by policy uncertainty, with government debt making the largest contribution at longer horizons. |
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