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Uncertainty and Economic Activity:
Global PerspectivesFourth Biennial Conference | May 13 & 14, 2021

The COVID-19 pandemic has triggered a massive spike in risks and uncertainties. Following the success of the first three conferences (2014, 2016, 2018), American University, International Monetary Fund and Federal Reserve Board will jointly organize the 4th biennial conference on “Uncertainty and Economic Activity: Global Perspectives.”


Please register to join the conference on Zoom.
(Pre-registration is required)


Board of Governors of the Federal Reserve System

International Monetary Fund

AU College of Arts and Sciences

Conference Schedule All times Eastern Daylight Time (EDT)

Please see expandable Session 1, Session 2, and Keynote Speeches below the daily overviews for abstracts and presenter details. 

May 13 Overview


9:50 – 10:00

Opening Remarks

Max Paul Friedman, Interim Dean, College of Arts and Science, American University

10:00 – 10:45

Keynote Address

Moderator: Xuguang Simon Sheng, American University

What Triggers Stock Market Jumps?
Steven Davis, University of Chicago Booth School of Business

10:45 – 12:30

Session 1

Moderator: Klodiana Istrefi, Banque de France

Policy Uncertainty, Lender of Last Resort and the Real Economy
Martina Jasova (Barnard College, Columbia University), Caterina Mendicino (European Central Bank) and Dominik Supera (University of Pennsylvania)

Taking Stock of Trade Policy Uncertainty: Evidence from China’s Pre-WTO Accession
George Alessandria, Shafaat Khan and Armen Khederlarian (all University of Rochester)

Country Risk
Tarek Hassan (Boston University), Jesse Schreger (Columbia University), Markus Schwedeler (Boston University) and Ahmed Tahoun (London Business School)

May 14 Overview

10:00 – 11:45

Session 2

Moderator: Bo Sun, Federal Reserve Board

Expectations Uncertainty and Household Economic Behavior
Elyas Fermand (University of North Carolina), Camelia Kuhnen (University of North Carolina), Geng Li (Federal Reserve Board) and Itzhak Ben-David (Ohio State University)

Monetary Policymakers’ Uncertainty
Anna Cieslak (Duke University), Stephen Hansen (Imperial College London), Michael McMahon (University of Oxford) and Song Xiao (London School of Economics)

Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics
Mathias Kruttli (Federal Reserve Board), Brigitte Roth Tran (Federal Reserve Board) and Sumudu Watugala (Cornell University)

11:45 – 12:30

Keynote Address

Moderator: Davide Furceri, International Monetary Fund

World Uncertainty During the Pandemic
Nicholas Bloom, Stanford University

Conference Organizers

Hites Ahir and Davide Furceri (International Monetary Fund), John Rogers and Bo Sun (Federal Reserve Board), Xuguang Simon Sheng (American University)

Program Committee

Wojtek Charemza (Vistula University), Laurent Ferrara (SKEMA Business School), Klodiana Istrefi (Banque de France), Raffaella Giacomini and Svetlana Makarova (University College London), Marcelo Ochoa, Emilio Osambela and Chiara Scotti (Federal Reserve Board)

May 13 Keynote

Steven Davis

We examine newspapers the day after major stock-market jumps to evaluate the proximate cause, geographic source, and clarity of these events from 1900 in the US, 1930 in the UK and 1980 in 12 other countries. We find four main results. First, the United States plays an outsized role in global stock markets, accounting for 35% of jumps outside the US since the 1980s. Second, policy causes a higher share of positive than negative jumps in all countries we examine, particularly monetary and government spending policy. We provide evidence that suggests these expansionary policy decisions are often made in response to poor economic conditions. Third, jumps caused by non-policy events lead to higher future volatility, while jumps caused by policy events (particularly monetary policy) reduce future volatility. Finally, the clarity of the cause of stock market jumps predicts future stock returns volatility. This type of clarity has increased substantially since 1900 as news and financial markets have become more transparent.

Session 1

Martina Jasova

A reduction in lender of last resort (LOLR) policy uncertainty positively affects bank lending and propagates to investment and employment. We exploit a unique policy that reduced uncertainty regarding the availability of future LOLR funding for banks as a quasi-natural experiment. Using micro-level data on banks, firms and loans in Portugal, we generate cross-sectional variation in banks’ exposure to uncertainty and find that the size of the haircut subsidy, the gap between private market and central bank security valuations, plays a key role in the propagation of the shock to lending and the real economy.

George Alessandria

We study the effects on trade from the annual tariff uncertainty about China’s MFN status renewal prior to joining the WTO. We have three main findings. First, counter to the evidence elsewhere, trade increases strongly in anticipation of uncertain future increases in tariffs. Second, even though the trade response can be quite large, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 5.5 percent. And third, what matters more is the expected future tariff rather than the uncertainty around it. We identify these effects using within-year variation in the risk of trade policy changes around the renewal vote and trade flows. We show that an (s,s) inventory model generates this behavior and that variation in the strength of the stockpiling in advance of the vote is increasing in the storability of goods. The model is also consistent with a sizeable fraction of the cross-industry variation in annual trade flows documented elsewhere. Our results explain why trade may hold up well in advance of a prospective policy change such as Brexit or the US escalating tariff war of 2018-19, but may fall off sharply even if expected tariff increases do not materialize.

Tarek Hassan

We construct new measures of country risk and sentiment as perceived by global investors and executives using textual analysis of the quarterly earnings calls of publicly listed firms around the world. Our quarterly measures cover 45 countries from 2002-2020. We use our measures to provide a novel characterization of country risk and to provide a harmonized definition of crises. We demonstrate that elevated perceptions of a country's riskiness are associated with significant falls in local asset prices and capital outflows, even after global financial conditions are controlled for. Increases in country risk are associated with reductions in firm-level investment and employment. We also show direct evidence of a novel type of contagion, where foreign risk is transmitted across borders through firm-level exposures. Exposed firms suffer falling market valuations and significantly retrench their hiring and investment in response to crises abroad. Finally, we provide direct evidence that heterogeneous currency loadings on global risk help explain the cross-country pattern of interest rates and currency risk premia.

Session 2

Camelia Kuhnen 

We show that there exists significant heterogeneity across US households in how uncertain they are in their expectations regarding personal and macroeconomic outcomes, and that uncertainty in expectations predicts households’ choices. Individuals with lower income or education, more precarious finances, and living in counties with higher unemployment are more uncertain in their expectations regarding own-income growth, inflation, and national home price changes. People with more uncertain expectations, even accounting for their socioeconomic characteristics, exhibit more precaution in their consumption, credit, and investment behaviors.

Michael McMahon

Former Fed Chair, Alan Greenspan, famously declared that “uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape.” While monetary policy uncertainty might play an important role in determining the macroeconomic effects of uncertainty shocks in general, the identification of monetary policy uncertainty itself is complex. Indeed, monetary policy both reacts to exogenous shocks to the economy (i.e., fundamental uncertainty beyond its control), but also creates uncertainty that can affect the macroeconomy. To understand the effects of monetary policy uncertainty, it is therefore vital to distinguish between those types of uncertainty. This distinction is also vital to assess how policy makers respond to uncertainty.

Sumudu Watugala

We present a framework to identify market responses to uncertainty faced by firms regarding both the potential incidence of extreme weather events and subsequent economic impact. Stock options of firms with establishments in forecasted and realized hurricane landfall regions exhibit large increases in implied volatility, reflecting significant incidence uncertainty and long-lasting impact uncertainty. Comparing ex ante expected volatility to ex post realized volatility by analyzing volatility risk premia changes shows that investors significantly underestimate extreme weather uncertainty. After Hurricane Sandy, this underreaction diminishes and, consistent with Merton (1987), these increases in idiosyncratic volatility are associated with positive expected stock returns.

May 14 Keynote

Nicholas Bloom

We construct a new index of uncertainty, the World Uncertainty Index (WUI), for 143 individual countries on a quarterly basis from 1996 onwards, and for 34 large advanced and emerging market economies from 1955. This is defined using the frequency of the word “uncertainty” in the quarterly Economist Intelligence Unit country reports. Globally, the Index spikes near the 9/11 attack, the SARS outbreak, the Gulf War II, the failure of Lehman Brothers, the Euro debt crisis, El Niño, the European border crisis, the UK Brexit vote, the 2016 US election and the recent US-China trade tensions. Uncertainty spikes tend to be more synchronized within advanced economies and between economies with tighter trade and financial linkages. The level of uncertainty is significantly higher in developing countries and is positively associated with economic policy uncertainty and stock market volatility, and negatively with GDP growth. In addition, there is an inverted U-shaped relationship between uncertainty and democracy. In a panel vector autoregressive setting, we find that innovations in the WUI foreshadow significant declines in output. This effect varies across countries and across sectors within the same country: across countries, the effect is larger and more persistent in those with lower institutional quality; across sectors, the effect is stronger in those more financially constrained.