A Consumption-Based Identification of Global Economic Uncertainty

41 Pages Posted: 9 Oct 2020

See all articles by Hwagyun Kim

Hwagyun Kim

Texas A&M University - Mays Business School

Eunhee Lee

Gyeongsang National University

Joon Y. Park

Texas A&M University

Date Written: August 20, 2020

Abstract

This paper identifies a global uncertainty factor by estimating an international asset pricing model featuring macroeconomic uncertainty with long-run risk factors. The global factor captures the time-varying fluctuations of common stochastic volatilities of consumption and dividend growths for countries, and reflects uncertainty in that it generates the highest volatility of volatility in transition period. The model quantitatively explains key asset pricing moments, and the estimated factor sharply increases during major international adverse events. Shocks to our global economic uncertainty factor significantly account for the likelihood of key economic and financial events, and outperforms existing measures of economic and financial uncertainties.

Keywords: GlobalGlobal Macroeconomic Uncertainty, Long-Run Uncertainty, Stochastic Volatility, Volatility of Volatility, Bayesian Method, Generalized Method of Moment

JEL Classification: C11, G12, E32, F41

Suggested Citation

Kim, Hwagyun and Lee, Eunhee and Park, Joon Y., A Consumption-Based Identification of Global Economic Uncertainty (August 20, 2020). Available at SSRN: https://ssrn.com/abstract=3678136 or http://dx.doi.org/10.2139/ssrn.3678136

Hwagyun Kim (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4218
United States

Eunhee Lee

Gyeongsang National University ( email )

Chinju City, South Kyongsang
Korea, Republic of (South Korea)

Joon Y. Park

Texas A&M University ( email )

College Station, TX 77843-4353
United States

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