The role of uncertainty, sentiment and cross-country interactions in G7 output dynamics

Anthony Garratt, Kevin Lee () and Kalvinder Shields

Canadian Journal of Economics, 2018, vol. 51, issue 2, 391-418

Abstract: Output fluctuations in the G7 are characterized using a VAR model of countries actual and expected outputs and uncertainty over these. New measures are developed to quantify the relative importance of economic prospects-versus-uncertainty, global-versus-national effects and fundamentals-versus-sentiment for countries persistent output movements. National and global contributions are found to be equally important across the G7 although considerable differences exist between countries. Uncertainty, and especially cross-country uncertainty, is important in propagating the effects of shocks and generates around 20% of countries persistent output movements on average. Fundamentals dominate output movements although, with an 80:20 split, sentiment plays a non-negligible role.

JEL-codes: C32 (search for similar items in EconPapers)
Date: 2018
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