Assessing International Commonality in Macroeconomic Uncertainty and its Effects

67 Pages Posted: 7 Oct 2019

See all articles by Andrea Carriero

Andrea Carriero

Queen Mary, University of London

Todd E. Clark

Federal Reserve Bank of Cleveland

Massimiliano Giuseppe Marcellino

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2019

Abstract

This paper uses a large vector autoregression to measure international macroeconomic uncertainty and its effects on major economies. We provide evidence of significant commonality in macroeconomic volatility, with one common factor driving strong comovement across economies and variables. We measure uncertainty and its effects with a large model in which the error volatilities feature a factor structure containing time-varying global components and idiosyncratic components. Global uncertainty contemporaneously affects both the levels and volatilities of the included variables. Our new estimates of international macroeconomic uncertainty indicate that surprise increases in uncertainty reduce output and stock prices, adversely affect labor market conditions, and in some economies lead to an easing of monetary policy.

Keywords: Business cycle uncertainty, large datasets, stochastic volatility

JEL Classification: C11, C55, E32, F44

Suggested Citation

Carriero, Andrea and Clark, Todd E. and Marcellino, Massimiliano, Assessing International Commonality in Macroeconomic Uncertainty and its Effects (August 2019). CEPR Discussion Paper No. DP13970, Available at SSRN: https://ssrn.com/abstract=3464496

Andrea Carriero (Contact Author)

Queen Mary, University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Todd E. Clark

Federal Reserve Bank of Cleveland ( email )

P.O. Box 6387
Cleveland, OH 44101
United States
216-579-2015 (Phone)

Massimiliano Marcellino

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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