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Measuring Global and Country-Specific Uncertainty
Author:
Ezgi O. Ozturknull

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and
Xuguang Simon Shengnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 219
Language:
English
Publication Date:
30 Oct 2017
DOI:
https://doi.org/10.5089/9781484316597.001
ISBN:
9781484316597
ISSN:
1018-5941
Pages:
41
Keywords:
WP; interest rate; economic policy; standard deviation; Capital Asset Pricing Model; Common Uncertainty; Consensus Forecasts; Idiosyncratic Uncertainty; Global Uncertainty; Survey Forecast; recession episode; VSU estimate; uncertainty shock; uncertainty measure; return volatility; Industrial production; Short term interest rates; Long term interest rates; Unemployment rate; Consumption; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Motivated by the literature on the capital asset pricing model, we decompose the uncertainty of a typical forecaster into common and idiosyncratic uncertainty. Using individual survey data from the Consensus Forecasts over the period of 1989-2014, we develop monthly measures of macroeconomic uncertainty covering 45 countries and construct a measure of global uncertainty as the weighted average of country-specific uncertainties. Our measure captures perceived uncertainty of market participants and derives from two components that are shown to exhibit strikingly different behavior. Common uncertainty shocks produce the large and persistent negative response in real economic activity, whereas the contributions of idiosyncratic uncertainty shocks are negligible.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 219