Time-varying effects of financial uncertainty shocks on macroeconomic fluctuations in Peru

Mauricio Alvarado and Gabriel Rodríguez

Journal of International Money and Finance, 2025, vol. 152, issue C

Abstract: This article employs a family of VAR models with time-varying parameters and stochastic volatility (TVP-VAR-SV) to estimate the impact of external financial uncertainty shocks on a set of macroeconomic variables in Peru for the period from 1996Q1 to 2022Q4. The main findings can be summarized as follows: (i) a simple VAR model with stochastic volatility is sufficient to capture uncertainty dynamics compared to TVP-VAR alternatives; (ii) uncertainty shocks have a negative and significant impact on private investment growth in the medium and long term; (iii) the impact on private investment growth is three times greater than that on GDP growth; (iv) uncertainty shocks behave like aggregate supply shocks, leading to an increase in the inflation rate; and (v) uncertainty shocks have stronger effects in scenarios characterized by unfavorable financial conditions.

Keywords: Macroeconomic fluctuations; Financial uncertainty shocks; Autoregressive vectors with time-varying parameters; Stochastic volatility; Bayesian estimation and comparison; Peruvian economy (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 F41 F62 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:152:y:2025:i:c:s0261560625000117

DOI: 10.1016/j.jimonfin.2025.103276

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