True economic uncertainty different than most risk measures

Research on economic uncertainty has been growing since the Financial Crisis. For many, the crisis was a surprise that has generated skepticism of conventional thinking. Models and predictions were wrong which has lead to growing skepticism on what can be predicted. There has been an increased sense that conventional models don't work and there is a greater degree of economic unknowns. 

Investor, forecasters, and businesses now face a new degree of uncertainty which has generated a wave of new research on how to measure uncertainty as well as how to determine its impact on markets. This research started before the Crisis but has picked-up a new sense of urgency. Wall Street firms have generated risk aversion indices to measure stress. Macroeconomic surprise indices have been developed to measure when forecasts differ from macro announcements. These indices measure the unanticipated part of and announcement. Some Fed banks have also developed stress indices to measure risk changes. There also has been a focus on market volatility like the VIX index as a fear measure. The meme of risk-on/risk-off behavior was the rage for a period after the 2008 decline. 

There has been early confusion between uncertainty and risk aversion with some of this work; however, there has been growing clarity on these measures. Uncertainty measures such as the policy uncertainty indices on news have been more specifically focused than just reporting option volatility. More recently, there has been new research on quantifiable measures of uncertainty. What this recent research has done is to separate market volatility from uncertainty measures to make an important distinction on the impact to the real economy. For example, see the work "Measuring Uncertainty" in the March 2015 American Economic Review.

This work focuses on uncertainty as measured by the forecast error across a broad set of economic series. The work makes a distinction between increased volatility which may be forecastable and forecast error which measures what was missed by any forecast. They find three big periods of uncertainty, 1973-74, 1981-82, and 2007-09. These correspond to the deepest and longest recession in the post-WWII period.

Aggregate macro uncertainty is strong but for only a few periods. This measure of uncertainty is different than stock market volatility or measures of news uncertainty. Macroeconomic uncertainty is strongly counter-cyclical and will have as strong an impact as a monetary shock, but it may not occur as frequently as other uncertainty measures. The other measures such as the VIX are important but just may not have the same macro ramifications as broad measures of forecast uncertainty.