International Transmission of Macroeconomic Uncertainty in Small Open Economies: An Empirical Approach

Jamie L. Cross (), Chenghan Hou and Aubrey Poon ()
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Jamie L. Cross: The University of Melbourne, Melbourne Business School
Chenghan Hou: Hunan University
Aubrey Poon: University of Kent

A chapter in Recent Developments in Bayesian Econometrics and Their Applications, 2025, pp 89-115 from Springer

Abstract: Abstract We propose a vector autoregression with common stochastic volatility in mean (VAR-CSVM) dynamics to estimate the transmission of domestic and international sources of macroeconomic uncertainty shocks in three small open economies (SOEs): Australia, Canada, and New Zealand. We find evidence that international uncertainty spillovers shape the macroeconomic conditions in all three SOEs; that domestic uncertainty shocks have idiosyncratic transmission mechanisms in each SOE; and that accounting for uncertainty within the VAR-CSVM improves point and density forecast accuracy compared to the nested VAR-CSV and homoscedastic VAR models.

Date: 2025
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DOI: 10.1007/978-3-032-00110-8_6

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