This paper argues that the implications of globalization for monetary policy come mainly through two channels: On the one hand, the many structural changes, which are associated with the globalization process, cause an increase in uncertainty surrounding monetary policy. This leads to an increase in uncertainty about how to interpret macroeconomic data/indicators and about the monetary transmis...

The authors examine how the co-movement between daily stock and Treasury bond returns varies with stock market uncertainty. They use the lagged implied volatility from equity index options to provide an objective, observable, and dynamic measure of stock market uncertainty. The authors find that stock and bond returns tend to move substantially together during periods of lower stock market unce...

Empirical growth research faces a high degree of model uncertainty. The current paper deals with the fundamental issue of parameter estimation under model uncertainty, and compares the performance of various model averaging techniques. In particular, it contrasts Bayesian model averaging (BMA) — currently one of the standard methods used in growth empirics — with a new method called weighted-av...

This paper models limit order books where each trader is uncertain of the underlying distribution in the asset’s value to others. If this uncertainty is rapidly resolved, fleeting limit orders are submitted and quickly cancelled. This enhances liquidity supply, but leaves intact established comparative statics results on spreads. However, risk neutral liquidity suppliers are averse to persisten...

This paper presents the partial analytical solution to a model of periodic consumption that incorporates imperfect capital markets and uncertainty. Our model assumes that consumption decisions occur more frequently than income receipt. We show that the week specific consumption functions can be ordered. At low levels of wealth these functions exhibit a “ushaped” pattern between income receipts....

Contrary to the models of deterministic life cycle saving, we take it for granted that uncertainty of one’s future is the essential problem of saving decisions. However, unlike the stochastic life cycle models, we capture this crucial uncertainty by a non-Bayesian scenario-based satisficing approach. Decision makers first form aspirations for a few relevant scenarios, and then search for saving...

This paper analyzes the investment timing for team projects. Under demand uncertainty, it is valuable to maintain flexibility in future investment alternatives. However, one party’s flexibility creates strategic uncertainty for another party, which causes the other party to choose a higher level of flexibility. This strategic complementarity leads to delays in investments in contrast to the cas...

Standard practice in empirical research is based on two steps: first, researchers select a model from the space of all possible models; second, they proceed as if the selected model had generated the data. Therefore, uncertainty in the model selection step is typically ignored. Alternatively, model averaging accounts for this model uncertainty. In this paper, I review the literature on model av...

Many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty. Motivated by experimental evidence such as the Ellsberg Paradox, we follow Knight (1921) and distinguish risk from uncertainty. To afford this distinction, we adopt the multiple-priors utility model. We show that the impact of ambiguity on the option exercise decision depends on the rel...

We formalize the idea that uncertainty is generated by news about future developments in economic conditions which are not perfectly predictable by the agents. With a simple model of limited information we show that uncertainty shocks can be obtained as the square of news shocks. We develop a two-step econometric procedure to estimate the effects of news and we find highly nonlinear effects. La...