The evolving impact of global, region-specific and country-specific uncertainty

Haroon Mumtaz and Alberto Musso

No 2147, Working Paper Series from European Central Bank

Abstract: We build a dynamic factor model with time-varying parameters and stochastic volatility and use it to decompose the variance of a large set of financial and macroeconomic variables for 22 OECD countries spanning from 1960 onwards into contributions from country-specific uncertainty, region-specific uncertainty and uncertainty common to all countries. We find that common global uncertainty plays a primary role in explaining the volatility of inflation, interest rates and stock prices, although to a varying extent over time. Region-specific uncertainty drives most of the exchange rate volatility for all Euro Area countries and for countries in North-America and Oceania. All uncertainty estimates (global, regional, country-specific and idiosyncratic) play a non-negligible role for real economic activity, credit and money for most countries. We also find that all uncertainty measures display significant recurrent fluctuations, that the recent peaks in uncertainty found for most estimates around 2008/2009 are comparable to those seen in the mid-1970s and early 1980s, and that all uncertainty measures appear to be strongly countercyclical and positively correlated with inflation. JEL Classification: C15, C32, E32

Keywords: dynamic factor model; global uncertainty; stochastic volatility; time-varying parameters; uncertainty shocks (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-mac and nep-opm
Note: 93259
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: The evolving impact of global, region-specific and country-specific uncertainty (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20182147

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