International Transmissions of Aggregate Macroeconomic Uncertainty in Small Open Economies : An Empirical Approach
Cross, Jamie L. and Poon, Aubrey and Hou, Chenghan (2018) International Transmissions of Aggregate Macroeconomic Uncertainty in Small Open Economies : An Empirical Approach. Preprint / Working Paper. CAMA Working papers, Canberra.
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Abstract
We estimate the effects of domestic and international sources of macroeconomic uncertainty in three commonly studied small open economies (SOEs): Australia, Canada and New Zealand. To this end, we propose a common stochastic volatility in mean panel VAR (CSVM-PVAR), and develop an efficient Markov chain Monte Carlo algorithm to estimate the model. Using a formal Bayesian model comparison exercise, our in-sample results suggest that foreign uncertainty spillovers shape the macroeconomic conditions in all SOEs, however domestic uncertainty shocks are important for Australia and Canada, but not New Zealand. The general mechanism is that foreign uncertainty shocks reduce real GDP and raise inflation in all SOEs, however the interest rate responses are idiosyncratic; being positive in Australia and New Zealand, and negative in Canada. Conversely, domestic uncertainty shocks tend to raise all three macroeconomic variables. Finally, in a pseudo out-of-sample forecasting exercise, the proposed model also forecasts better than traditional PVAR and CSV-PVAR benchmarks.
ORCID iDs
Cross, Jamie L., Poon, Aubrey ORCID: https://orcid.org/0000-0003-2587-8779 and Hou, Chenghan;-
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Item type: Monograph(Preprint / Working Paper) ID code: 65738 Dates: DateEvent18 April 2018PublishedNotes: CAMA Working Paper 16/2018 Subjects: Social Sciences > Economic Theory Department: Strathclyde Business School > Economics Depositing user: Pure Administrator Date deposited: 11 Oct 2018 10:16 Last modified: 31 Aug 2024 01:17 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/65738