The impact of global uncertainty on the global economy, and large developed and developing economies

Wensheng Kang, Ronald Ratti and Joaquin Vespignani

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Global uncertainty shocks are associated with a sharp decline in global inflation, global growth and in the global interest rate. Over 1981 to 2014 global financial uncertainty forecasts 18.26% and 14.95% of the variation in global growth and global inflation respectively. Global uncertainty shocks have more protracted, statistically significant and substantial effects on global growth, inflation and interest rate than U.S. uncertainty shocks. U.S. uncertainty lags global uncertainty by one month. When controlling for domestic uncertainty, the decline in output following a rise in global uncertainty is statistically significant in each country, with the exception of the decline for China. The effects for the U.S. and for China are also relatively small. For most economies, a positive shock to global uncertainty has a depressing effect on prices and official interest rates. Exceptions are Brazil, Mexico and Russia, economies with large capital outflows during financial crises. Decomposition of global uncertainty shocks shows that global financial uncertainty shocks are more important than non-financial shocks.

Keywords: Global; Uncertainty Shocks; Monetary Policy; FAVAR (search for similar items in EconPapers)
JEL-codes: D80 E44 E66 F62 G10 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2017-01
New Economics Papers: this item is included in nep-cna and nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Impact of global uncertainty on the global economy and large developed and developing economies (2020)
Working Paper: The Impact of Global Uncertainty on the Global Economy, and Large Developed and Developing Economies (2017)
Working Paper: Impact of Global Uncertainty on the Global Economy and Large Developed and Developing Economies (2017)
Working Paper: The impact of global uncertainty on the global economy, and large developed and developing economies (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2017-09

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