Understanding Uncertainty Shocks in Uruguay Through VAR Modeling

Bibiana Lanzilotta, Gabriel Merlo (), Gabriela Mordecki () and Viviana Umpierrez ()
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Gabriel Merlo: Universidad de la República
Gabriela Mordecki: Universidad de la República
Viviana Umpierrez: Universidad de la República

Journal of Business Cycle Research, 2023, vol. 19, issue 3, No 5, 399-419

Abstract: Abstract This study introduces a first set of uncertainty indexes for Uruguay (a newspaper-based index and a composite index-based) to analyze how economic uncertainty impacts domestic variables in a small and open economy such as Uruguay, which is exposed to international, regional, and local uncertainty. The analysis covers approximately 15 years and uses the vector autoregressive methodological framework. The main findings suggest that economic uncertainty significantly impacts the real economy and does not impact the nominal variables. These findings which differentiate from other results found in the empirical literature, can be associated with the stability of the Uruguayan economy and the strong institutions, which may help mitigate external shocks. To assess the capability of the proposed uncertainty model to predict macroeconomic variables, we evaluate its predictive performance within the last major uncertainty shock due to the COVID-19 pandemic.

Keywords: Economic uncertainty; EPU index; VAR-X; Volatility; Uruguay; COVID-19 (search for similar items in EconPapers)
JEL-codes: D80 E32 E37 E44 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s41549-023-00081-5

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