A fruitful emerging literature reveals that shocks to uncertainty can explain asset returns, business cycles and financial crises. The literature equates uncertainty shocks with changes in the variance of an innovation whose distribution is common knowledge. But how do such shocks arise? This...

A fruitful emerging literature reveals that shocks to uncertainty can explain asset returns, business cycles and financial crises. The literature equates uncertainty shocks with changes in the variance of an innovation whose distribution is common knowledge. But how do such shocks arise? This...

For decades, macroeconomists have searched for shocks that are plausible drivers of business cycles. A recent advance in this quest has been to explore uncertainty shocks. Researchers use a variety of forecast and volatility data to justify heteroskedastic shocks in a model, which can then...

A recent literature explores many ways in which uncertainty shocks can have important economic effects. But how large are uncertainty shocks and where do they come from? Researchers typically estimate a model with stochastic volatility, using all available data, then condition on the estimated...