Assessing Uncertainty in the Euro Area and the USA

Abstract

Since the beginning of the the financial crisis, which is dated roughly around the years 2007 and 2008, five years have passed. Starting as a subprime mortgage crisis it evolved into ever expanding dimensions and in its aftermath even unveiled the massively accumulated macroeconomic imbalances within the euro area, which keep us busy until today. Since then, considerable uncertainty with respect to resolving the crisis, but also possible future developments exists. Therefore the European Central Bank (ECB) as well as the Federal Reserve (Fed) face a multiplicity of challenges. While uncertainty might be a problem of general concern, during times of turmoil it becomes of special interest. During such periods market participants might change their usual behavior with the effect of a break up of established transmissions. This implies an even higher degree of uncertainty for the monetary authority (González-Páramo 2008).