A high degree of financial and macroeconomic uncertainty may have contractionary effects on the business cycle. This work studies the drivers behind changes in the volatility of macroeconomic and financial variables, using an econometric methodology and an identification scheme that allows us to measure the role played by demand, supply and financial or monetary shocks. To this end, the empirical application is performed by using 50 years (1964-2016) of monthly data relating to the US economy.
In the United States, changes in the volatility of significant macroeconomic variables, such as disposable income, employment level, consumption, industrial production and inflation, are mostly driven by aggregate demand and supply shocks. Moreover, since the global financial crisis, the contribution of monetary and financial shocks to explaining the volatility of US employment levels has increased.
