Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-25T05:04:06.407Z Has data issue: false hasContentIssue false
  • English
  • Français

INTERNATIONAL OUTPUT AND INFLATION UNCERTAINTY AND THEIR IMPACT ON COUNTRIES' MACROECONOMIC PERFORMANCE. EVIDENCE FROM A DYNAMIC FACTOR GARCH-IN-MEAN MODEL

Published online by Cambridge University Press:  26 February 2018

Tino Berger  and
Sibylle Grabert
Tino Berger*
Affiliation:
University of Goettingen
Sibylle Grabert
Affiliation:
University of Muenster
*
Address correspondence to: Tino Berger, Department of Economics, University of Goettingen, Platz der Goettinger Sieben 3, 37073 Goettingen, Germany; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

We identify international output and inflation uncertainty and analyze their impact on individual countries' macroeconomic performance. Output and inflation uncertainty on an international level is measured through the conditional variances of common factors in inflation and output growth, estimated from a bivariate dynamic factor model with GARCH errors. The impact of international and country-specific uncertainty is analyzed by including the conditional variances as regressors. We find increases in uncertainty during the first and second oil crisis, the 1980s and 1990s recessions as well as the recent Great Recession to be confined to the international level. The effect of international uncertainty results to be highly significant and unambiguously negative on countries' output growth and inflation rates whereas the impact of country-specific uncertainty is very mixed.

Keywords

UncertaintyDynamic Factor ModelsGARCH-in-mean
Type
Articles
Information
Macroeconomic Dynamics , Volume 22 , Issue 5 , July 2018 , pp. 1113 - 1133
Copyright
Copyright © Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Bernanke, Ben S. (1983) Irreversibility, uncertainty, and cyclical investment. Quarterly Journal of Economics 98, 85–106.CrossRefGoogle Scholar
Berument, Hakan, Yalcin, Yeliz, and Yildirim, Julide (2009) The effect of ination uncertainty on ination: Stochastic volatility in mean model within a dynamic framework. Economic Modelling 26 (6), 1201–1207.Google Scholar
Black, Fischer (1987) Business Cycles and Equilibrium. New York: Basil Blackwell.Google Scholar
Bloom, Nicholas (2009) The impact of uncertainty shocks. Econometrica 77 (3), 623–685.Google Scholar
Bloom, Nicholas (2014) Fluctuations in uncertainty. Journal of Economic Perspectives 28 (2), 153–176.Google Scholar
Bredin, Don and Fountas, Stilianos (2009) Macroeconomic uncertainty and performance in the European Union. Journal of International Money and Finance 28 (6), 972–986.Google Scholar
Chua, Chew Lian, Kim, David, and Suardi, Sandy (2011) Are empirical measures of macroeconomic uncertainty alike? Journal of Economic Surveys 25 (4), 801–827.Google Scholar
Ciccarelli, Matteo and Mojon, Benoandicirct (2010) Global inflation. The Review of Economics and Statistics 92 (3), 524–535.Google Scholar
Cukierman, Alex and Meltzer, Allan H. (1986) A theory of ambiguity, credibility, and inflation under discretion and asymmetric information. Econometrica 54 (5), 1099–1128.Google Scholar
Cukierman, Alex and Gerlach, Stefan (2003) The inflation bias revisited: Theory and some international evidence. Manchester School 71 (5), 541–565.Google Scholar
Dixit, Avinash K. and Pindyck, Robert S. (1994) Investment Under Uncertainty. Princeton, NJ: Princeton University Press.Google Scholar
Durbin, James and Koopman, Siem J. (2001) Time Series Analysis by State Space Methods. Oxford, UK: Oxford University Press.Google Scholar
Enders, Walter (2004) Applied Econometric Time Series Wiley series in probability and statistics, 2nd ed. Hoboken, NJ: Wiley.Google Scholar
Fernandez–Villaverde, Jesus, Guerron–Quintana, Pablo, Rubio–Ramirez, Juan F., and Uribe, Martin (2011) Risk matters: The real effects of volatility shocks. American Economic Review 101 (6), 2530–2561.Google Scholar
Fountas, Stilianos and Karanasos, Menelaos (2007) Inflation, output growth, and nominal and real uncertainty: Empirical evidence for the G7. Journal of International Money and Finance 26 (2), 229–250.Google Scholar
Fountas, Stilianos, Karanasos, Menelaos, and Kim, Jinki (2006) Inflation uncertainty, output growth uncertainty and macroeconomic performance. Oxford Bulletin of Economics and Statistics 68 (3), 319–343.Google Scholar
Friedman, Milton (1977) Nobel lecture: Inflation and unemployment. Journal of Political Economy 85 (3), 451–472.Google Scholar
Grier, Kevin B. and Perry, Mark J. (1998) On inflation and inflation uncertainty in the G7 countries. Journal of International Money and Finance 17 (4), 671–689.CrossRefGoogle Scholar
Grier, Kevin B. and Perry, Mark J. (2000) The effects of real and nominal uncertainty on inflation and output growth: Some garch-m evidence. Journal of Applied Econometrics 15 (1), 45–58.Google Scholar
Grier, Kevin B., Henry, Olan T., Olekalns, Nilss, and Shields, Kalvinder (2004) The asymmetric effects of uncertainty on inflation and output growth. Journal of Applied Econometrics 19 (5), 551–565.Google Scholar
Grimme, Christian, Henzel, Steffen R., and Wieland, Elisabeth (2011) Inflation Uncertainty Revisited: A Proposal for Robust Measurement. Ifo Working Paper Series Ifo Working Paper No. 111, Ifo Institute for Economic Research at the University of Munich.Google Scholar
Harvey, C. Andrew, Ruiz, Esther, and Sentana, Enrique (1992) Unobserved component time series models with ARCH disturbances. Journal of Econometrics 52, 129–157.Google Scholar
Holland, A. Steven (1995) Inflation and uncertainty: Tests for temporal ordering. Journal of Money, Credit and Banking 27 (3), 827–837.Google Scholar
Kim, Chang-Jin and Nelson, Charles R. (1999) State–Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications. Cambridge, MA: MIT Press.Google Scholar
Koopman, Siem J. and Durbin, James (2000) Fast filtering and smoothing for multivariate state space models. Journal of Time Series Analysis 21, 281–296.Google Scholar
Kose, M. Ayhan, Prasad, Eswar S., and Terrones, Marco E. (2003) How does globalization affect the synchronization of business cycles? American Economic Review 93 (2), 57–62.Google Scholar
Mumtaz, Haroon, Simonelli, Saverio, and Surico, Paolo (2011) International comovements, business cycle and inflation: A historical perspective. Review of Economic Dynamics 14, 176–198.Google Scholar
Mumtaz, Haroon, Simonelli, Saverio, and Surico, Paolo (2012) Evolving international inflation dynamics: World and country-specific factors. Journal of the European Economic Association 10 (4), 716–734.Google Scholar
Neely, Christopher J. and Rapach, David E. (2008) Is Inflation An International Phenomenon?. Working Papers 2008–025, Federal Reserve Bank of St. Louis.Google Scholar
Pindyck, Robert S. (1991) Irreversibility, uncertainty, and investment. Journal of Economic Literature 29, 1110–1148.Google Scholar
Popescu, Adina and Smets, Frank Rafael (2010) Uncertainty, risk–taking, and the business cycle in Germany. CESifo Economic Studies 56 (4), 596–626.CrossRefGoogle Scholar
Stock, James H. and Watson, Mark W. (2005) Understanding changes in international business cycle dynamics. Journal of the European Economic Association 3 (5), 968–1006.Google Scholar