SOURCES OF MONETARY GROWTH UNCERTAINTY AND ECONOMIC-ACTIVITY - THE TIME-VARYING-PARAMETER MODEL WITH HETEROSKEDASTIC DISTURBANCES

A large body of research suggests that uncertainty is an important factor affecting economic activity. Most earlier research, however, fails to consider the possibility that uncertainty may affect the value of new information and economic activity differently, depending upon its source. We first examine the importance of these different sources for modeling U.S. monetary growth uncertainty. We then empirically relate different sources of monetary growth uncertainty to economic activity measured by real GNP. The results suggest that different sources of uncertainty have different impacts on economic activity. The results tend to confirm predictions arising in the literature on irreversible investment and uncertainty.