Uncertainty about growth increases financial uncertainty, and financial uncertainty increases uncertainty about growth

The uncertainty about future growth is great , given the signs of a decline in activity in the euro zone, Japan, China and emerging countries, and the uncertainty about whether vigorous growth will continue in the United States. This uncertainty about growth helps drive up financial uncertainty, which is very significant currently. But the increase in uncertainty leads to falling share prices, rising risk premia, high volatility of capital flows and exchange rates, and these developments in turn curb growth and increase uncertainty about growth. There is therefore an amplification of the uncertainty through the interaction between uncertainty about growth and financial uncertainty.