Measuring global and country-specific uncertainty

By Ezgi O. Ozturk, Xuguang Simon Sheng. Journal of International Money and Finance, 2017

159 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/eb92081a672725e8ef82685d4c93868f3f54933b

Citations in the corpus

• Macroeconomic Uncertainty Through the Lens of Professional Forecasters (2019, unknown): “Scotti (2016) exploited survey forecasts and created an uncertainty index as the weighted sum of squared forecast errors for different indicators, while Ozturk and Sheng (2017) used survey forecasts to decompose individual countries’ uncertainties between global and country-specific components.”
• Economic uncertainty and bank risk: Evidence from emerging economies (2020, unknown): “Third, we borrow the index of “idiosyncratic” uncertainty from Ozturk and Sheng (2018), which differs from the volatility-based uncertainty indicators by defining uncertainty as the disagreement among professional forecasters with respect to important economic variables.”