Measuring Global and Country-Specific Uncertainty

IMF Working Papers, October 30, 2017

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Measuring Global and Country-Specific Uncertainty

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Bibliographic details

• Authors: Ezgi O. Ozturk, Xuguang Simon Sheng
• Published: October 30, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484316597.001

Research question and scope

• Objective: Decompose the uncertainty of a typical forecaster into common and idiosyncratic uncertainty, motivated by the literature on the capital asset pricing model.
• Data: Individual survey data from the Consensus Forecasts over the period of 1989-2014 covering 45 countries.
• Frequency and construct: Develop monthly measures of macroeconomic uncertainty and construct a measure of global uncertainty as the weighted average of country-specific uncertainties.
• Coverage: Measures capture perceived uncertainty of market participants.

Methodology and measures

• Decomposition: Uncertainty is decomposed into two components — common uncertainty and idiosyncratic uncertainty — following capital asset pricing model motivations.
• Aggregation: Global uncertainty measure equals the weighted average of country-specific uncertainties.
• Estimation period: 1989-2014.
• Frequency: Monthly measures.

Key findings

• Behavioral divergence of components:
  • Common uncertainty and idiosyncratic uncertainty exhibit strikingly different behavior.
• Macroeconomic impact:
  • Common uncertainty shocks produce the large and persistent negative response in real economic activity.
  • Contributions of idiosyncratic uncertainty shocks are negligible.
• Perception focus: The measure reflects perceived uncertainty of market participants as reported in survey forecasts.

Subjects and keywords (as provided)

• Subjects: Consumption, Financial services, Industrial production, Labor, Long term interest rates, National accounts, Production, Short term interest rates, Unemployment rate.
• Keywords: Capital Asset Pricing Model, Common Uncertainty, Consensus Forecasts, Consumption, economic policy, Global, Global Uncertainty, Idiosyncratic Uncertainty, Industrial production, interest rate, Long term interest rates, recession episode, return volatility, Short term interest rates, standard deviation, Survey Forecast, uncertainty measure, uncertainty shock, Unemployment rate, VSU estimate, WP.

Content in this bundle

• Measuring Global and Country-specific Uncertainty, WP/17/219, October 2017
  • Measuring Global and Country-specific Uncertainty, WP/17/219, October 2017 (Markdown version)
  • Measuring Global and Country-specific Uncertainty, WP/17/219, October 2017 (PDF)