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Measuring international uncertainty using global vector autoregressions with drifting parameters

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  • Michael Pfarrhofer

Abstract

This paper investigates the time-varying impacts of international macroeconomic uncertainty shocks. We use a global vector autoregressive specification with drifting coefficients and factor stochastic volatility in the errors to model six economies jointly. The measure of uncertainty is constructed endogenously by estimating a scalar driving the innovation variances of the latent factors, which is also included in the mean of the process. To achieve regularization, we use Bayesian techniques for estimation, and introduce a set of hierarchical global-local priors. The adopted priors center the model on a constant parameter specification with homoscedastic errors, but allow for time-variation if suggested by likelihood information. Moreover, we assume coefficients across economies to be similar, but provide sufficient flexibility via the hierarchical prior for country-specific idiosyncrasies. The results point towards pronounced real and financial effects of uncertainty shocks in all countries, with differences across economies and over time.

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  • Michael Pfarrhofer, 2019. "Measuring international uncertainty using global vector autoregressions with drifting parameters," Papers 1908.06325, arXiv.org, revised Dec 2019.
  • Handle: RePEc:arx:papers:1908.06325
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    3. Razieh Zahedi & Asghar Shahmoradi & Ali Taiebnia, 2022. "The ever-evolving trade pattern: a global VAR approach," Empirical Economics, Springer, vol. 63(3), pages 1193-1218, September.

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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