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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: tino.berger@wiwi.uni-goettingen.de.
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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 

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