Abstract
This study examines variability in the effects of uncertainty shocks using a panel of international data. It first evaluates variability in the effects of uncertainty shocks by applying rolling sample and time-varying parameter Vector Autoregression models to US data covering the past 70 years. The results reveal that the effects of uncertainty shocks on the US economy have changed substantially over time. First, the negative effect of uncertainty shocks on the output decreased until the recent period, in which monetary policy rules are constrained by the zero lower bound. Second, contrary to the negative aggregate demand interpretation in the recent literature, uncertainty shocks acted as a negative aggregate supply shock in the earlier periods. From the past 50 years’ data for 12 small open economies, I find that the negative effect of uncertainty shocks on output has increased, contrary to the US case. Additionally, the exchange rate and inflation responses are heterogeneous across countries, and the country's commodity exporter or safe haven status is critical in determining the sign of these responses. Finally, the increased vulnerability of small open economies to uncertainty shocks is associated with an increase in international trade.
| Original language | English |
|---|---|
| Pages (from-to) | 1339-1351 |
| Number of pages | 13 |
| Journal | Journal of Macroeconomics |
| Volume | 53 |
| DOIs | |
| Publication status | Published - 2017 Sep |
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All Science Journal Classification (ASJC) codes
- Economics and Econometrics
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Variability in the effects of uncertainty shocks : New stylized facts from OECD countries. / Choi, Sangyup.
In: Journal of Macroeconomics, Vol. 53, 09.2017, p. 1339-1351.Research output: Contribution to journal › Article
TY - JOUR
T1 - Variability in the effects of uncertainty shocks
T2 - New stylized facts from OECD countries
AU - Choi, Sangyup
PY - 2017/9
Y1 - 2017/9
N2 - This study examines variability in the effects of uncertainty shocks using a panel of international data. It first evaluates variability in the effects of uncertainty shocks by applying rolling sample and time-varying parameter Vector Autoregression models to US data covering the past 70 years. The results reveal that the effects of uncertainty shocks on the US economy have changed substantially over time. First, the negative effect of uncertainty shocks on the output decreased until the recent period, in which monetary policy rules are constrained by the zero lower bound. Second, contrary to the negative aggregate demand interpretation in the recent literature, uncertainty shocks acted as a negative aggregate supply shock in the earlier periods. From the past 50 years’ data for 12 small open economies, I find that the negative effect of uncertainty shocks on output has increased, contrary to the US case. Additionally, the exchange rate and inflation responses are heterogeneous across countries, and the country's commodity exporter or safe haven status is critical in determining the sign of these responses. Finally, the increased vulnerability of small open economies to uncertainty shocks is associated with an increase in international trade.
AB - This study examines variability in the effects of uncertainty shocks using a panel of international data. It first evaluates variability in the effects of uncertainty shocks by applying rolling sample and time-varying parameter Vector Autoregression models to US data covering the past 70 years. The results reveal that the effects of uncertainty shocks on the US economy have changed substantially over time. First, the negative effect of uncertainty shocks on the output decreased until the recent period, in which monetary policy rules are constrained by the zero lower bound. Second, contrary to the negative aggregate demand interpretation in the recent literature, uncertainty shocks acted as a negative aggregate supply shock in the earlier periods. From the past 50 years’ data for 12 small open economies, I find that the negative effect of uncertainty shocks on output has increased, contrary to the US case. Additionally, the exchange rate and inflation responses are heterogeneous across countries, and the country's commodity exporter or safe haven status is critical in determining the sign of these responses. Finally, the increased vulnerability of small open economies to uncertainty shocks is associated with an increase in international trade.
UR - http://www.scopus.com/inward/record.url?scp=85021630154&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85021630154&partnerID=8YFLogxK
U2 - 10.1016/j.jmacro.2017.06.006
DO - 10.1016/j.jmacro.2017.06.006
M3 - Article
AN - SCOPUS:85021630154
VL - 53
SP - 1339
EP - 1351
JO - Journal of Macroeconomics
JF - Journal of Macroeconomics
SN - 0164-0704
ER -