Regime-Dependent Effects of Uncertainty Shocks. A Markov-Switching Approach for Central Eastern European Countries

Georgiana Plesa
Additional contact information
Georgiana Plesa: Bucharest University of Economic Studies, Romania

Czech Journal of Economics and Finance (Finance a uver), 2024, vol. 74, issue 1, 105-140

Abstract: Over the past decades, the Central Eastern European (CEE) economies have experienced events characterized by a high degree of uncertainty that have had adverse and persistent effects at the macroeconomic level. This paper analyzes the asymmetric effects of uncertainty shocks (alternately defined by a financial stress index and implied volatility) in two distinct regimes. Structural sudden regime shifts from a high-volatility regime to a low-volatility one are modeled using Markov-switching vector autoregressive models with sign restrictions, given that the probability transition matrix is either time-invariant or time-variant. Our results on key macroeconomic monthly indicators (industrial production, inflation, interest rate) suggest that uncertainty shocks produce significant short-term effects on industrial production and inflation, slightly different in these two regimes, along with a persistent effect on the interest rate.

Keywords: Markov-switching; uncertainty shocks; time-varying probability; high-low volatility regimes (search for similar items in EconPapers)
JEL-codes: C11 C32 C51 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journal.fsv.cuni.cz/mag/article/show/id/1530 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:74:y:2024:i:1:p:105-140

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().