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Understanding Uncertainty Shocks in Uruguay Through VAR Modeling

Author

Listed:
  • Bibiana Lanzilotta

    (Universidad de la República)

  • Gabriel Merlo

    (Universidad de la República)

  • Gabriela Mordecki

    (Universidad de la República)

  • Viviana Umpierrez

    (Universidad de la República)

Abstract

This study introduces a first set of uncertainty indexes for Uruguay (a newspaper-based index and a composite index-based) to analyze how economic uncertainty impacts domestic variables in a small and open economy such as Uruguay, which is exposed to international, regional, and local uncertainty. The analysis covers approximately 15 years and uses the vector autoregressive methodological framework. The main findings suggest that economic uncertainty significantly impacts the real economy and does not impact the nominal variables. These findings which differentiate from other results found in the empirical literature, can be associated with the stability of the Uruguayan economy and the strong institutions, which may help mitigate external shocks. To assess the capability of the proposed uncertainty model to predict macroeconomic variables, we evaluate its predictive performance within the last major uncertainty shock due to the COVID-19 pandemic.

Suggested Citation

  • Bibiana Lanzilotta & Gabriel Merlo & Gabriela Mordecki & Viviana Umpierrez, 2023. "Understanding Uncertainty Shocks in Uruguay Through VAR Modeling," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 19(3), pages 399-419, November.
    • Handle: RePEc:spr:jbuscr:v:19:y:2023:i:3:d:10.1007_s41549-023-00081-5
    DOI: 10.1007/s41549-023-00081-5
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    More about this item

    Keywords

    Economic uncertainty; EPU index; VAR-X; Volatility; Uruguay; COVID-19;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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