Time-Varying Effects of Financial Uncertainty Shocks on Macroeconomic Fluctuations in Peru

Mauricio Alvarado and Gabriel Rodríguez
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Mauricio Alvarado: Pontificia Universidad Católica del Perú.

No 2024-531, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: This article employs a family of VAR models with time-varying parameters and stochastic volatility (TVP-VAR-SV) to estimate the impact of external financial uncertainty shocks on a set of macroeconomic variables in Peru for the period from 1996Q1 to 2022Q4. The main findings can be summarized as follows: (i) a simple VAR model with stochastic volatility is sufficient to capture uncertainty dynamics compared to TVP-VAR alternatives; (ii) uncertainty shocks have a negative and significant impact on private investment growth in the medium and long term; (iii) the impact on private investment growth is three times greater than that on GDP growth; (iv) uncertainty shocks behave like aggregate supply shocks, leading to an increase in the inflation rate; and (v) uncertainty shocks have stronger effects in scenarios characterized by unfavorable financial conditions. JEL Classification-JE: C11, C32, E32, F41, F62.

Keywords: Macroeconomic Fluctuations; Financial Uncertainty Shocks; Autoregressive Vectors with Time-Varying Parameters; Stochastic Volatility; Bayesian Estimation and Comparison; Peruvian Economy. (search for similar items in EconPapers)
Pages: 52
Date: 2024
New Economics Papers: this item is included in nep-fdg
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