Macroeconomic vs. Financial Uncertainty in the Euro Area: Regime-Dependent Transmission and the Volatility–Risk Premium Channel
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- In recent years, the euro area has experienced an unusual sequence of shocks, including the pandemic disruption, the energy-driven inflation surge, and the rapid monetary tightening cycle. This paper studies whether macroeconomic uncertainty (MEU), expected financial volatility (FU), and priced volatility risk (VRP) represent distinct uncertainty channels in the euro area, and whether their effects depend on the prevailing macro-financial regime. Local projections are estimated using innovations in MEU, FU, and the VRP along with complementary LP-IV and state-dependent specifications. The results suggest that the three components have different transmission profiles. MEU is associated with a broad real-activity channel, FU is associated with the clearest contractionary financialstress response, and the VRP behaves as a distinct priced-risk component; its inflation response is episode-dependent and concentrated in supply shock periods, while in normal macro-financial conditions it transmits primarily through financial stress with more delayed real effects. State-dependent estimates show component-specific amplification where FU transmission intensifies through credit conditions under financial stress, while recessionary periods amplify MEU through demand compression and VRP through on-impact financial stress. These findings suggest that treating uncertainty indicators as interchangeable can obscure the relevant macro-financial transmission mechanism. For euro area policy analysis, distinguishing between macroeconomic uncertainty, expected financial volatility, and priced volatility risk is therefore important for assessing the effects of uncertainty shocks across different regimes.