1. Measuring Global and Country-Specific Uncertainty
- Author
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Xuguang Simon Sheng and Ezgi O. Ozturk
- Subjects
Economics and Econometrics ,Financial economics ,media_common.quotation_subject ,Measure (mathematics) ,0502 economics and business ,Econometrics ,Economics ,Capital asset pricing model ,Sensitivity analysis ,050207 economics ,Economic forecasting ,050205 econometrics ,General Environmental Science ,media_common ,Consumption (economics) ,050208 finance ,05 social sciences ,Interest rate ,Econometric model ,Negative response ,General Earth and Planetary Sciences ,Survey data collection ,Construct (philosophy) ,Consensus forecast ,Weighted arithmetic mean ,Finance - Abstract
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.
- Published
- 2017
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