Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/122085
Authors: 
Mumtaz, Haroon
Theodoridis, Konstantinos
Year of Publication: 
2015
Series/Report no.: 
Working Paper, School of Economics and Finance, Queen Mary, University of London 752
Abstract: 
We use a factor model with stochastic volatility to decompose the time-varying variance of Macro economic and Financial variables into contributions from country-specific uncertainty and uncertainty common to all countries. We find that the common component plays an important role in driving the time-varying volatility of nominal and financial variables. The cross-country co-movement in volatility of real and financial variables has increased over time with the common component becoming more important over the last decade. Simulations from a two-country DSGE model featuring Epstein Zin preferences suggest that increased globalisation and trade openness may be the driving force behind the increased cross-country correlation in volatility.
Subjects: 
FAVAR
Stochastic Volatility
Uncertainty Shocks
DSGE Model
JEL: 
C15
C32
E32
Document Type: 
Working Paper

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