Common and Country Specific Economic Uncertainty

Haroon Mumtaz and Konstantinos Theodoridis

No 752, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: We use a factor model with stochastic volatility to decompose the time-varying variance of Macro economic and Financial variables into contributions from country-specific uncertainty and uncertainty common to all countries. We find that the common component plays an important role in driving the time-varying volatility of nominal and financial variables. The cross-country co-movement in volatility of real and financial variables has increased over time with the common component becoming more important over the last decade. Simulations from a two-country DSGE model featuring Epstein Zin preferences suggest that increased globalisation and trade openness may be the driving force behind the increased cross-country correlation in volatility.

Keywords: FAVAR; Stochastic Volatility; Uncertainty Shocks; DSGE Model (search for similar items in EconPapers)
JEL-codes: C15 C32 E32 (search for similar items in EconPapers)
Date: 2015-08-13
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Citations: View citations in EconPapers (32)

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Related works:
Journal Article: Common and country specific economic uncertainty (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:752

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