The Measurement Of China’s Macroeconomic Uncertainty

Early at the period of David Ricardo, during the building of economic theory, there exists an unavoidable problem. For economic analysis, the uncertainty must be excluded, but for economic policy, only taking into account the uncertainties, it is more practical. In1921Chicago School founder Knight believes profit comes from the uncertainty, he promoted the development of the uncertain macroeconomic theory research. At the same year, the British economist Keynes absorbed the essence of the uncertainty theory of Knight, did the systematic study about uncertainty, and thought uncertainty was the core of economics. Knight and Keynes made a very important contribution to the economic uncertainty theory. Neoclassical economists turn uncertainty into risk, with the probability measuring the uncertainty.In the past half-century, uncertainty has a major impact on the progress of economic theory.Macroeconomic uncertainty is the change that people can not accurately observe, analyze and anticipate, which is the deviation between the expected values and the actual values. Only the unpredictable fluctuations in the economy is the uncertainty. The macroeconomic uncertainty plays a important part in policy decision, and measuring correctly is a key step. In this paper, econometric models which exclude the expectation are used, and the advantages and disadvantages of different measurement models are compared. We measure the index system consisting of fourteen macroeconomic indicators to reflect macroeconomic uncertainty, which provide quantitative measurement results for correctly understanding macroeconomic uncertainty and economic policy decision.For measurement methods, we analyze the advantages and disadvantages about the international and domestic commonly used uncertainty measurement methods. In the end, we select the GARCH model, SV model and Markov Switching AR model to measure the economic uncertainty.As for the macroeconomic indexes, lastly we choose14macroeconomic indexes, which are divided into5categories: macroeconomic boom indicators、macroeconomic policy indicators、 price indicators、stock market indicators、total economy indicators. In order to grasp the overall situation of China’s macroeconomic uncertainty, we do the factor analysis of14economic indicators. Finally we reduce the14economic indicators into two factors, economic strength factor and economic boom factor.Then, we use the GARCH model, SV model and Markov Switching AR model to measure the14macroeconomic indicators uncertainty and the uncertainty of economic strength factor、economic boom factor and the total factor. For China’s economy, there is great uncertainty mainly during the1993to1996years,1998to1999years,2008to2009years,2013to2014years. For most indicators, uncertainty measured by the three models is very similar, but each has its characteristic. There still exist some differences among macroeconomic uncertainties reflected by different models, and different indicators.Hereafter, the paper does the analysis about the international oil price uncertainty, VIX index, VHSI index and EPU index. Then, we do comparison between them and the economic uncertainty measured earlier. By contrast, the paper chooses the second factor economic boom uncertainty measured by SV models as the representatives of economic uncertainty. In the end, based on VAR model, we study the effects from China’s economic uncertainty on the total economy.