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Recently there has been a lot of media coverage on the economic debate surrounding macroeconomic uncertainty. The uncertain economic climate across the world is impacting consumer spending, investment, and government spending. Uncertain economic conditions have led to higher interest rates, slower GDP growth, weakening in the dollar, rising inflation, and increasing unemployment. Uncertainty in global macroeconomics is leading to more volatility in international markets. Uncertainty is the cause of much of the economic volatility, therefore many economic variables are fluctuating and subject to greater influence. In order to understand and capture the uncertainty in global macroeconomics, several macroeconomic indicators are used.

Recently there has been a lot of media coverage on the economic debate surrounding macroeconomic uncertainty. The uncertain economic climate across the world is impacting consumer spending, investment, and government spending. Uncertain economic conditions have led to higher interest rates, slower GDP growth, weakening in the dollar, rising inflation, and increasing unemployment. Uncertainty in global macroeconomics is leading to more volatility in international markets. Uncertainty is the cause of much of the economic volatility, therefore many economic variables are fluctuating and subject to greater influence. In order to understand and capture the uncertainty in global macroeconomics, several macroeconomic indicators are used.
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Ideally, one should look at several macroeconomic uncertainty indices: (I) The Macroeconomic Uncertainty Index (MEE), (ii) The Economic Surprise Index (ESI), (iii) The Volatility Index (IV), and (iv) The Monetary Statistics Index (MSI). These three sources combine to measure the level of economic instability or uncertainty. When aggregated, the MEE, ESI, and IV measures of economic instability are then used to create an “empirical” estimate of the level of economic uncertainty. The other two measures are based on theoretical assumptions about economic fluctuations.
The EPU is derived by following macroeconomic uncertainty analysis using the standard deviation function as a measure of dispersion. The standard deviation is calculated by taking the sample of real time data and varying the statespace model parameters through time. After each time step, the value of the mean of the real time data distribution is compared with the corresponding expected value of the statespace model. The result of this comparison is the experimental value of the dispersion in the data distribution. Using the mean value of the model distribution, the uncertainty in the microrate can be estimated by calculating the standard deviation at the mean value of the distribution and dividing it by the number of observations in the time interval studied.
The other two uncertainty indices that are derived from the EPU are the MSI and VVI. The MSI is based on the average rate of change in economic variables over time, while the VVI uses the deviation of the expected value from the actual mean over time to estimate changes in economic volatility. Uncertainty in microwave estimates arises from the fact that there are high levels of volatility that are not observed in traditional economic uncertainty indicators. While this can occur in cases where the range of macroeconomic variables is very wide, there are instances when the range is so narrow that traditional methods cannot separate the macroeconomic variables from the microeconomic variables. In these cases, the uncertainty in the form of deviations from the mean can be estimated using micro probability density functions, which are techniques for representing the deviation of random variables by the means of statistical distributions.
There are three economic uncertainty indices that are used in theuccobased economic model that is used in theucco structures as a means of representing economic volatility. These are the deviation of the mean, the standard deviation, and the volatility balance. The deviation of the mean is evaluated by taking the difference between the actual mean and the predicted mean; standard deviation measures deviation . . . . . . of the deviation from the mean in terms of the arithmetic mean and compares it to the deviation of the mean calculated from the actual data set. The third index is the volatility balance, which measures the deviation of prices from their mean value. This index is best used in conjunction with the others in evaluating the performance of the economy under different economic conditions.
Uncertainties in economic variables arise due to the nondeterministic character of the underlying economic process and due to the inherently stochastic nature of economic processes. This means that the values of the economic uncertainties are subject to abrupt changes even when they follow a longrun trend. This is why the economic uncertainty index is important for economic forecasting purposes. It can help project the behavior of the economy based on past and present economic situations. It can also provide information on the likely course of the macroeconomic indicators.