DP13970 Assessing International Commonality in Macroeconomic Uncertainty and Its Effects

Author(s): Andrea Carriero, Todd Clark, Massimiliano Marcellino
Publication Date: August 2019
Keyword(s): Business cycle uncertainty, large datasets, stochastic volatility
JEL(s): C11, C55, E32, F44
Programme Areas: International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13970

This paper uses a large vector autoregression to measure international macroeconomic uncertainty and its effects on major economies. We provide evidence of signi cant 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.