A survey of uncertainty measures
In this paper Cascaldi-Garcia and al. provide a comprehensive survey of the existing measures of uncertainty and risk. They divide them into three categories:
- News-based, survey based, and econometric which measure the economic, monetary, and trade policy uncertainty; geopolitical risk; and survey-based and econometric measures of macroeconomic uncertainty.
- Asset market based which include measures covering equity return volatility, interest rates, oil prices, and inflation.
- Knightian uncertainty which separates risk from uncertainty. One such measure is the ambiguity index which reflects people’s aversion towards stock market ambiguity.
Two important conclusions:
- Although most of the literature still speaks in broad brush terms about “uncertainty” or “risk”, carefully defining the nature of risk is quite important;
- The transmission of risks is substantial, both across sectors and across countries.
What is Certain about Uncertainty?
Authors: Danilo Cascaldi-Garcia, Cisil Sarisoy, Juan M. Londono, John Rogers, Deepa Datta, Thiago Ferreira, Olesya Grishchenko, Mohammad R. Jahan-Parvar, Francesca Loria, Sai Ma, Marius Rodriguez, Ilknur Zer
From: Federal Reserve Board
How to build early warning uncertainty indicators
In this paper, Müller and Horning construct a news-based indicator that captures different kinds of uncertainty, some of which may precede others. They use the Latent Dirichlet Allocation method, an unsupervised text mining technique, over 750,000 articles published since 2018 in the two leading nation-wide German newspapers to model their Uncertainty Perception Indicator (UPI). They find that the UPI appears to be more sensitive to truly exogeneous uncertainty, like the Corona pandemic as it picked up not only the timing of increases in uncertainty levels, but also the size of the shock.
Expecting the Unexpected: A new Uncertainty Perception Indicator (UPI) – concept and first results
Authors: Henrik Müller, Nico Hornig
From: TU Dortmund University
