The Effect of Uncertainty on Macroeconomic Activity

I replicate and extend the research documented in Jones and Enders (2016) and manage to come to similar conclusions. I employ a nonlinear framework, the logistic smooth transition autoregressive (LSTAR) model, in combination with conditional volatility estimated using an EGARCH model, realised volatility and conditional volatility estimated using a MIDAS model as respective uncertainty measures. I find that uncertainty indeed has a nonlinear effect on macroeconomic activity, in this paper proxied by industrial production, and this effect also turns out to be asymmetric in the sense that positive and negative shocks of the same size have different sized effects on industrial production.