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Assessing uncertainty in Europe and the US: is there a common uncertainty factor?

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  • Sauter, Oliver

Abstract

This paper is an empirical investigation of uncertainty in the Euro Zone as well as the US. It conducts a factor analysis of uncertainty measures starting in 2001 until the end of 2011. For this purpose I use survey-based data provided by the ECB and the Federal Reserve Bank of Philadelphia as well as the stock market indices VSTOXX and VIX, both measures of implied volatility of stock market movements. Each measure shows an increase in uncertainty during the last years marked by the financial turmoil. Given the rise in uncertainty, the question arises whether this uncertainty is driven by the same underlying forces. For the Euro Zone, I show that uncertainty can be separated into driving forces of short and long-term uncertainty. In the US there is a sharp distinction between uncertainty that drives stock market and “real” variables on the one hand and inflation (short and long-term) on the other hand. Combing both data sets, factor analysis delivers (1) an international stock market factor, (2) a common European uncertainty factor and (3) an US-inflation uncertainty factor.

Suggested Citation

  • Sauter, Oliver, 2012. "Assessing uncertainty in Europe and the US: is there a common uncertainty factor?," MPRA Paper 38031, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38031
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    File URL: https://mpra.ub.uni-muenchen.de/38031/1/MPRA_paper_38031.pdf
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    References listed on IDEAS

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    Cited by:

    1. Glas, Alexander, 2020. "Five dimensions of the uncertainty–disagreement linkage," International Journal of Forecasting, Elsevier, vol. 36(2), pages 607-627.

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    More about this item

    Keywords

    monetary policy; uncertainty; survey forecast; forecast disagreement; factor analysis;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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