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Implications of Macroeconomic Volatility in the Euro Area

Author

Listed:
  • Niko Hauzenberger

    (Department of Economics, Vienna University of Economics and Business)

  • Maximilian Böck

    (Department of Economics, Vienna University of Economics and Business)

  • Michael Pfarrhofer

    (Department of Economics, Vienna University of Economics and Business)

  • Anna Stelzer

    (Department of Economics, Vienna University of Economics and Business)

  • Gregor Zens

    (Department of Economics, Vienna University of Economics and Business)

Abstract
In this paper, we estimate a Bayesian vector autoregressive (VAR) model with factor stochastic volatility in the error term to assess the effects of an uncertainty shock in the Euro area (EA). This allows us to incorporate uncertainty directly into the econometric framework and treat it as a latent quantity. Only a limited number of papers estimates impacts of uncertainty and macroeconomic consequences jointly, and most literature in this sphere is based on single countries. We analyze the special case of a shock restricted to the Euro area, whose countries are highly related by definition. Among other variables, we find significant results of a decrease in real activity measured by GDP in most Euro area countries over a period of roughly a year following an uncertainty shock.

Suggested Citation

  • Niko Hauzenberger & Maximilian Böck & Michael Pfarrhofer & Anna Stelzer & Gregor Zens, 2018. "Implications of Macroeconomic Volatility in the Euro Area," Department of Economics Working Papers wuwp261, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp261
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    Cited by:

    1. Oscar Claveria, 2021. "On the Aggregation of Survey-Based Economic Uncertainty Indicators Between Different Agents and Across Variables," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 17(1), pages 1-26, April.
    2. Śmiech, Sławomir & Papież, Monika & Shahzad, Syed Jawad Hussain, 2020. "Spillover among financial, industrial and consumer uncertainties. The case of EU member states," International Review of Financial Analysis, Elsevier, vol. 70(C).
    3. Śmiech, Sławomir & Papież, Monika & Dąbrowski, Marek A., 2019. "How important are different aspects of uncertainty in driving industrial production in the CEE countries?," Research in International Business and Finance, Elsevier, vol. 50(C), pages 252-266.

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    More about this item

    Keywords

    vector autoregressive models; factor stochastic volatility; uncertainty shocks;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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