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The impact of global uncertainty on the global economy, and large developed and developing economies

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Kang, W and Ratti, R and Vespignani, JL (2017) The impact of global uncertainty on the global economy, and large developed and developing economies. Discussion Paper. University of Tasmania. (Unpublished)

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Abstract

Global uncertainty shocks are associated with a sharp decline in global inflation, global growth
and in the global interest rate. Over 1981 to 2014 global financial uncertainty forecasts 18.26%
and 14.95% of the variation in global growth and global inflation respectively. Global
uncertainty shocks have more protracted, statistically significant and substantial effects on
global growth, inflation and interest rate than U.S. uncertainty shocks. U.S. uncertainty lags
global uncertainty by one month. When controlling for domestic uncertainty, the decline in
output following a rise in global uncertainty is statistically significant in each country, with the
exception of the decline for China. The effects for the U.S. and for China are also relatively
small. For most economies, a positive shock to global uncertainty has a depressing effect on
prices and official interest rates. Exceptions are Brazil, Mexico and Russia, economies with
large capital outflows during financial crises. Decomposition of global uncertainty shocks
shows that global financial uncertainty shocks are more important than non-financial shocks.

Item Type: Report (Discussion Paper)
Keywords: global, uncertainty shocks, monetary policy, FAVAR
Publisher: University of Tasmania
Identification Number - DOI: 978-1-86295-894-4
Additional Information:

Discussion Paper Series N 2017-01

Date Deposited: 27 Mar 2017 02:56
Last Modified: 27 Mar 2017 03:17
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