Global Long-run Risk and International Business Cycles: A Factor-Stochastic Volatility Approach

60 Pages Posted: 16 Nov 2018

See all articles by Calebe Figueiredo

Calebe Figueiredo

University of North Carolina (UNC) at Chapel Hill, College of Arts and Sciences, Department of Economics, Students

Date Written: October 22, 2018

Abstract

We extract a global factor from cross-country output growth since 1960. We find that the fluctuations of the global factor are typically small, with the annualized unconditional volatility estimated at 0.06%, but highly persistent, with estimated persistence at 0.98. Evidence of time variation in the volatility of the global factor is overwhelming as there are times in which volatility could be several times larger than its unconditional level (about ten times in the aftermath of the 2008 financial crisis). We provide evidence that the exposure to the global factor is not homogeneous across countries and that countries share global long-run risk and propose a theoretical framework that rationalizes the dynamics of macroeconomic quantities and prices observed in the data.

Keywords: Factor-stochastic volatility, Long-run risk, Bayesian Econometrics, Robust preferences

JEL Classification: C11, C32, E32

Suggested Citation

Figueiredo, Calebe, Global Long-run Risk and International Business Cycles: A Factor-Stochastic Volatility Approach (October 22, 2018). Available at SSRN: https://ssrn.com/abstract=3272447 or http://dx.doi.org/10.2139/ssrn.3272447

Calebe Figueiredo (Contact Author)

University of North Carolina (UNC) at Chapel Hill, College of Arts and Sciences, Department of Economics, Students ( email )

Chapel Hill, NC 27599
United States
919 951 5709 (Phone)

HOME PAGE: http://https://econ.unc.edu/grads/calebe-figueiredo/

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