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Financial Uncertainty in Germany and its Impact on Western European Terrorism

  • Mario Jovanovic

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    This paper analyses the link between the VDAX as a proxy for European financial uncertainty and the number of terror incidents in Western Europe. Considering data of the Global Terrorism Database, the number of terror incidents does – on average – not affect financial uncertainty. In contrast, based on a behavioral model of terrorism motivated by Schmid and de Graaf (1982), lagged financial uncertainty contains information for the risk of terror events. Estimation results of the negative binominal quasi maximum likelihood count data model confirm an inverse impact of lagged financial uncertainty on terrorism. Furthermore, empirical evidence leads to the conclusion of average lead time for terror incidents of 6 month. These results are potentially important for terror prevention.

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    File URL: http://repec.rwi-essen.de/files/REP_11_296.pdf
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    Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0296.

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    Length: 16 pages
    Date of creation: Dec 2011
    Date of revision:
    Handle: RePEc:rwi:repape:0296
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    1. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, 05.
    2. Gourieroux Christian & Monfort Alain & Trognon A, 1981. "Pseudo maximum likelihood methods : theory," CEPREMAP Working Papers (Couverture Orange) 8129, CEPREMAP.
    3. Walter Enders & Todd Sandler & Khusrav Gaibulloev, 2011. "Domestic Versus Transnational Terrorism: Data, Decomposition, and Dynamics," Journal of Peace Research, Peace Research Institute Oslo, vol. 48(3), pages 319-337, May.
    4. Cameron, A. Colin & Trivedi, Pravin K., 1990. "Regression-based tests for overdispersion in the Poisson model," Journal of Econometrics, Elsevier, vol. 46(3), pages 347-364, December.
    5. S. Brock Blomberg & Gregory D. Hess & Athanasios Orphanides, 2004. "The Macroeconomic Consequences of Terrorism," CESifo Working Paper Series 1151, CESifo Group Munich.
    6. Khusrav Gaibulloev & Todd Sandier, 2011. "The Adverse Effect of Transnational and Domestic Terrorism on Growth in Africa," Journal of Peace Research, Peace Research Institute Oslo, vol. 48(3), pages 355-371, May.
    7. Khusrav Gaibulloev & Todd Sandler, 2008. "Growth Consequences of Terrorism in Western Europe," Kyklos, Wiley Blackwell, vol. 61(3), pages 411-424, 08.
    8. Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
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