Measuring uncertainty and its impact on the economy

We propose a new model for measuring uncertainty and its e˙ects on the economy, based on a large vector autoregression with stochastic volatility driven by common fac-tors representing macroeconomic and financial uncertainty. The uncertainty measures reflect changes in both the conditional mean and volatility of the variables, and their im-pact on the economy can be assessed within the same framework. Estimates with U.S. data show substantial commonality in uncertainty, with sizable e˙ects of uncertainty on key macroeconomic and financial variables. However, historical decompositions show a limited role of uncertainty shocks in macroeconomic fluctuations.