Measuring global and country-specific uncertainty

Ezgi O. Ozturk and Xuguang Simon Sheng

Journal of International Money and Finance, 2018, vol. 88, issue C, 276-295

Abstract: Motivated by the literature on the capital asset pricing model, we decompose the uncertainty of a typical forecaster into common and idiosyncratic uncertainty. Using individual survey data from the Consensus Forecasts over the period of 1989–2014, we develop monthly measures of macroeconomic uncertainty covering 45 countries and construct a measure of global uncertainty as the weighted average of country-specific uncertainties. Our measure captures perceived uncertainty of market participants and derives from two components that are shown to exhibit strikingly different behavior. Common uncertainty shocks produce the large and persistent negative response in real economic activity, whereas the contributions of idiosyncratic uncertainty shocks are negligible.

Keywords: Capital asset pricing model; Common uncertainty; Consensus forecasts; Idiosyncratic uncertainty; Global uncertainty; Survey forecast (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (81)

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Related works:
Working Paper: Measuring Global and Country-Specific Uncertainty (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:88:y:2018:i:c:p:276-295

DOI: 10.1016/j.jimonfin.2017.07.014

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