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Assessing international commonality in macroeconomic uncertainty and its effects

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  • Andrea Carriero
  • Todd E. Clark
  • Massimiliano Marcellino

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.

Suggested Citation

  • Andrea Carriero & Todd E. Clark & Massimiliano Marcellino, 2020. "Assessing international commonality in macroeconomic uncertainty and its effects," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(3), pages 273-293, April.
    • Handle: RePEc:wly:japmet:v:35:y:2020:i:3:p:273-293
    DOI: 10.1002/jae.2750
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    JEL classification:

    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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