Measuring international uncertainty using global vector autoregressions with drifting parameters

Arbeitspapier

This paper investigates the time-varying impacts of international macroeconomic uncertainty shocks. We use a global vector autoregressive (GVAR) specification with drifting coefficients and factor stochastic volatility in the errors to model six economies jointly. The measure of uncertainty is constructed endogenously by estimating a scalar driving the innovation variances of the latent factors, and is included also in the mean of the process. To achieve regularization, we use Bayesian techniques for estimation, and introduce a set of hierarchical global-local shrinkage priors. The adopted priors center the model on a constant parameter specification with homoscedastic errors, but allow for time-variation if suggested by likelihood information. Moreover, we assume coefficients across economies to be similar, but provide sufficient flexibility via the hierarchical prior for country-specific idiosyncrasies. The results point towards pronounced real and financial effects of uncertainty shocks in all countries, with differences across economies and over time.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers in Economics ; No. 2019-03

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Large Data Sets: Modeling and Analysis ; Business Fluctuations; Cycles ; General Outlook and Conditions ; International Financial Markets
• Subject: Bayesian global vector autoregressive model ; state space modeling ; hierarchical priors ; factor stochastic volatility ; stochastic volatility in mean

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pfarrhofer, Michael
• Event: Veröffentlichung
• (who): University of Salzburg, Department of Social Sciences and Economics
• (where): Salzburg
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/224100
• Last update: 10.03.2025, 11:42 AM CET