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Common and country specific economic uncertainty

Haroon Mumtaz and Konstantinos Theodoridis ()

Journal of International Economics, 2017, vol. 105, issue C, 205-216

Abstract: We use a factor model with stochastic volatility to decompose the time-varying variance of macroeconomic and financial variables into contributions from country-specific uncertainty and uncertainty common to all countries. We find that the common component plays an important role in driving the time-varying volatility of nominal and financial variables. The cross-country co-movement in volatility of real and financial variables has increased over time with the common component becoming more important over the last decade. Simulations from a two-country DSGE model featuring Epstein-Zin preferences suggest that increased globalisation and trade openness may be the driving force behind the increased cross-country correlation in volatility.

Keywords: FAVAR; Stochastic volatility; Uncertainty shocks; DSGE model (search for similar items in EconPapers)
JEL-codes: C15 C32 E32 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Common and Country Specific Economic Uncertainty (2015) Downloads
Working Paper: Common and Country Specific Economic Uncertainty (2015) Downloads
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