Measuring Global and Country-Specific Uncertainty

Ezgi O. Ozturk and Xuguang Simon Sheng

No 2017/219, IMF Working Papers from International Monetary Fund

Abstract: Motivated by the literature on the capital asset pricing model, we decompose the uncertainty of a typical forecaster into common and idiosyncratic uncertainty. Using individual survey data from the Consensus Forecasts over the period of 1989-2014, we develop monthly measures of macroeconomic uncertainty covering 45 countries and construct a measure of global uncertainty as the weighted average of country-specific uncertainties. Our measure captures perceived uncertainty of market participants and derives from two components that are shown to exhibit strikingly different behavior. Common uncertainty shocks produce the large and persistent negative response in real economic activity, whereas the contributions of idiosyncratic uncertainty shocks are negligible.

Keywords: WP; interest rate; economic policy; standard deviation; Capital Asset Pricing Model; Common Uncertainty; Consensus Forecasts; Idiosyncratic Uncertainty; Global Uncertainty; Survey Forecast; recession episode; VSU estimate; uncertainty shock; uncertainty measure; return volatility; Industrial production; Short term interest rates; Long term interest rates; Unemployment rate; Consumption; Global (search for similar items in EconPapers)
Pages: 41
Date: 2017-10-30
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Citations: View citations in EconPapers (15)

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Journal Article: Measuring global and country-specific uncertainty (2018)
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