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Uncertainty shocks and systemic-risk indicators

Author

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  • Hristov, Nikolay
  • Roth, Markus
Abstract
The current paper broadens the understanding of the role played by uncertainty in the context of macroeconomic fluctuations. It focuses on the implications of uncertainty shocks for indicators of systemic risk in the financial system. Such indicators‘ signals tend to precede financial crises and are interpreted as signaling the build-up of considerable misallocations of capital and credit. In an empirical analysis we show for a panel of four euro area countries that negative uncertainty shocks, while boosting economic activity, are followed by unfavorable reactions of systemic-risk indicators. We conclude that standard uncertainty measures contain some useful information on the potential build-up of vulnerabilities in the financial system.

Suggested Citation

  • Hristov, Nikolay & Roth, Markus, 2022. "Uncertainty shocks and systemic-risk indicators," Journal of International Money and Finance, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:jimfin:v:122:y:2022:i:c:s0261560621002242
    DOI: 10.1016/j.jimonfin.2021.102573
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    3. Yildirim, Zekeriya, 2022. "Global financial risk, the risk-taking channel, and monetary policy in emerging markets," Economic Modelling, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    Uncertainty; Crisis indicators; Structural macroeconomic shocks; Sign restrictions;
    All these keywords.

    JEL classification:

    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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