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The impact of global uncertainty on the global economy, and large developed and developing economies

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Abstract

Global uncertainty shocks are associated with a sharp decline in global inflation, global growth and in the global interest rate. Over 1981 to 2014 global financial uncertainty forecasts 18.26% and 14.95% of the variation in global growth and global inflation respectively. Global uncertainty shocks have more protracted, statistically significant and substantial effects on global growth, inflation and interest rate than U.S. uncertainty shocks. U.S. uncertainty lags global uncertainty by one month. When controlling for domestic uncertainty, the decline in output following a rise in global uncertainty is statistically significant in each country, with the exception of the decline for China. The effects for the U.S. and for China are also relatively small. For most economies, a positive shock to global uncertainty has a depressing effect on prices and official interest rates. Exceptions are Brazil, Mexico and Russia, economies with large capital outflows during financial crises. Decomposition of global uncertainty shocks shows that global financial uncertainty shocks are more important than non-financial shocks.

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  • Kang, Wensheng & Ratti, Ronald. A. & Vespignani, Joaquin, 2017. "The impact of global uncertainty on the global economy, and large developed and developing economies," Working Papers 2017-01, University of Tasmania, Tasmanian School of Business and Economics.
  • Handle: RePEc:tas:wpaper:23397
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    Cited by:

    1. Kang, Wensheng & Ratti, Ronald. A. & Vespignani, Joaquin, 2017. "Global commodity prices and global stock volatility shocks: effects across countries," Working Papers 2017-05, University of Tasmania, Tasmanian School of Business and Economics.
    2. Ansgar Belke & Thomas Osowski, 2017. "International Effects of Euro Area versus US Policy Uncertainty: A FAVAR Approach," ROME Working Papers 201703, ROME Network.

    More about this item

    Keywords

    global; uncertainty shocks; monetary policy; FAVAR;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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