The cost of uncertainty

TL;DR

This paper explores the long-term social costs of economic uncertainty, especially in macroeconomic contexts, and provides an analysis specific to Colombia, expanding beyond traditional short-term models.

Contribution

It introduces a macroeconomic perspective on the long-term social costs of uncertainty and applies this analysis to the Colombian economy, filling a gap in existing research.

Findings

Uncertainty has significant long-term social costs.

Colombia faces notable economic impacts from uncertainty.

The paper offers a new macroeconomic framework for assessing uncertainty.

Abstract

The traditional and most common view of economists on the issue of (bad) uncertainty and its effects has been one of partial equilibrium. When the topic is approached from a macroeconomic perspective, the most frequent has been the examination of the effects of uncertainty shocks on short-term dynamics with various methods, but mainly with neo-Keynesian and statistical (vector autoregressive) models. This document responds to another concern and has two objectives: 1. to reflect on this issue with some instruments of the macroeconomist's toolbox related to a medium or long-term horizon, and 2. report a ciphering of the social cost of uncertainty in the Colombian case.