Uncertainty and Economic Activity: A Global Perspective

Mohammad Pesaran, Ambrogio Cesa-Bianchi and Alessandro Rebucci ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The 2007-2008 global _financial crisis and the subsequent anemic recovery have rekindled academic interest in quantifying the impact of uncertainty on further assume that these common factors affect volatility and economic activity with a time lag of at least a quarter. Under these assumptions, we show analytically that volatility is forward looking and that the output equation of a typical VAR estimated in the literature is mis-specified as least squares estimates of this equation are inconsistent. Empirically, we document a statistically significant and economically sizable impact of future output growth on current volatility, and no effect of volatility shocks on business cycles, over and above those driven by the common factors. We interpret this evidence as suggesting that volatility is a symptom rather than a cause of economic instability.

Keywords: Uncertainty; Realized volatility; GVAR; Great Recession; Identi cation; Business Cycle; Common Factors. (search for similar items in EconPapers)
JEL-codes: E44 F44 G15 (search for similar items in EconPapers)
Date: 2014-05-19
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-opm
Note: mhp1
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Citations: View citations in EconPapers (46)

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Related works:
Working Paper: Uncertainty and Economic Activity: A Global Perspective (2014)
Working Paper: Uncertainty and Economic Activity: A Global Perspective (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1407

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