Uncertainty and Economic Activity: A Global Perspective
Cambridge Working Papers in Economics
Faculty of Economics
MetadataShow full item record
Pesaran, H., Cesa-Bianchi, A., & Rebucci, A. (2014). Uncertainty and Economic Activity: A Global Perspective. https://doi.org/10.17863/CAM.4957
The 2007-2008 global _financial crisis and the subsequent anemic recovery have rekindled academic interest in quantifying the impact of uncertainty on further assume that these common factors affect volatility and economic activity with a time lag of at least a quarter. Under these assumptions, we show analytically that volatility is forward looking and that the output equation of a typical VAR estimated in the literature is mis-specified as least squares estimates of this equation are inconsistent. Empirically, we document a statistically significant and economically sizable impact of future output growth on current volatility, and no effect of volatility shocks on business cycles, over and above those driven by the common factors. We interpret this evidence as suggesting that volatility is a symptom rather than a cause of economic instability.
GVAR, Great Recession, Identi cation, Business Cycle, Common Factors.
This record's DOI: https://doi.org/10.17863/CAM.4957
This record's URL: https://www.repository.cam.ac.uk/handle/1810/255220
All Rights Reserved
Licence URL: https://www.rioxx.net/licenses/all-rights-reserved/