Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/183329
Authors: 
Mumtaz, Haroon
Musso, Alberto
Year of Publication: 
2018
Series/Report no.: 
ECB Working Paper No. 2147
Abstract: 
We build a dynamic factor model with time-varying parameters and stochastic volatility and use it to decompose the variance of a large set of financial and macroeconomic variables for 22 OECD countries spanning from 1960 onwards into contributions from country-specific uncertainty, region-specific uncertainty and uncertainty common to all countries. We find that common global uncertainty plays a primary role in explaining the volatility of inflation, interest rates and stock prices, although to a varying extent over time. Region-specific uncertainty drives most of the exchange rate volatility for all Euro Area countries and for countries in North-America and Oceania. All uncertainty estimates (global, regional, country-specific and idiosyncratic) play a non-negligible role for real economic activity, credit and money for most countries. We also find that all uncertainty measures display significant recurrent fluctuations, that the recent peaks in uncertainty found for most estimates around 2008/2009 are comparable to those seen in the mid-1970s and early 1980s, and that all uncertainty measures appear to be strongly countercyclical and positively correlated with inflation.
Subjects: 
dynamic factor model
time-varying parameters
stochastic volatility
uncertainty shocks
global uncertainty
JEL: 
C15
C32
E32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3252-3
Document Type: 
Working Paper

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