Discussion paper

DP15881 Downside and Upside Uncertainty Shocks

An increase in uncertainty is not contractionary per se. What generates a significant downturn
of economic activity is a widening of the left tail of the expected distribution of growth,
the downside uncertainty. On the contrary, an increase of the right tail, the upside uncertainty,
is mildly expansionary. The reason for why uncertainty shocks have been previously
found to be contractionary is because movements in downside uncertainty dominate existing
empirical measures of uncertainty. The results are obtained using a new econometric
approach which combines quantile regressions and structural VARs.


Forni, M, L Gambetti and L Sala (2021), ‘DP15881 Downside and Upside Uncertainty Shocks‘, CEPR Discussion Paper No. 15881. CEPR Press, Paris & London. https://cepr.org/publications/dp15881