## A Comprehensive Macroeconomic Uncertainty Measure for the Euro Area and its Implications to COVID-19

_IMF Working Papers, November 3, 2023_

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## Bibliographic details
- Authors: Mariarosaria Comunale, Anh D. M. Nguyen
- Published: November 3, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400258176.001

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### Measure construction and methodology
- Develops a new data-driven metric: MacroEconomic Uncertainty (MEU) for the euro area.
- MEU is constructed as the conditional volatility of the unforecastable components of a large set of time series.
- The construction accounts for the monetary union as well as cross-country heterogeneity.
- Empirical framework uses Bayesian VARs (BVAR-based analysis).

### Key empirical findings
- MEU exhibits the largest spike at the time of the COVID-19 outbreak.
- MEU is noticeably different from other more financial-oriented and policy-driven uncertainty measures.
- The measure reveals a significant increase in inflation uncertainty in 2021-2022.
- BVAR-based analysis results:
  - An unexpected increase in the MEU has a negative and persistent impact on euro area's industrial production.
  - The MEU shock accounts for 80 percent of the reduction in industrial production during the first wave of COVID-19, supporting the interpretation of the COVID-19 shock as a macroeconomic uncertainty shock.
  - Public debt increases in response to this uncertainty shock.
- International spillovers:
  - An increase in MEU negatively affects Emerging Europe countries.
  - MEU contributes the most to the decline in Emerging Europe economic activity during the COVID-19 period.

### Subject areas and keywords
- Subject: COVID-19, Financial crises, Global financial crisis of 2008-2009, Health, Industrial production, Production
- Keywords: Bayesian VARs, COVID-19, euro area, Europe, Global, Global financial crisis of 2008-2009, IMF working paper No. 2023/229, increase in MEU, Industrial production, macroeconomic uncertainty, macroeconomic uncertainty shock, meu index, uncertainty shock

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_Source: https://www.imf.org/en/publications/wp/issues/2023/11/03/a-comprehensive-macroeconomic-uncertainty-measure-for-the-euro-area-and-its-implications-to-540835_