Board of Governors of the Federal Reserve System

November 2017

Taxonomy of Global Risk, Uncertainty, and Volatility Measures

Deepa Datta, Juan M. Londono, Bo Sun, Daniel Beltran, Thiago Ferreira, Matteo Iacoviello, Mohammad R. Jahan-Parvar, Canlin Li, Marius Rodriguez, and John Rogers

Abstract:

A large number of measures for monitoring risk and uncertainty surrounding macroeconomic and financial outcomes have been proposed in the literature, and these measures are frequently used by market participants, policy makers, and researchers in their analyses. However, risk and uncertainty measures differ across multiple dimensions, including the method of calculation, the underlying outcome (that is, the asset price or macroeconomic variable), and the horizon at which they are calculated. Therefore, in this paper, we review the literature on global risk, uncertainty, and volatility measures drawing on internal and external academic research as well as ongoing monitoring conducted by the Federal Reserve Board's economics divisions to catalog measures by method of data collection, computation, and subject. We first explore a set of non-asset-marketbased measures of risk and uncertainty, including news-based and survey-based uncertainty measures of monetary policy and macroeconomic outcomes. We then turn to asset-market-based measures of risk uncertainty for equity prices, interest rates, currencies, oil prices, and inflation.

Keywords: Risk, uncertainty, volatility, monetary policy, geopolitical risk, equities, interest rates, exchange rates, commodities, inflation, variance risk premium

DOI: https://doi.org/10.17016/IFDP.2017.1216

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