Abstract
We develop a dynamic factor model with time-varying parameters and stochastic volatility, estimate it using a large panel of macroeconomic and financial data for 22 countries and decompose the variance of each variable in terms of contributions from uncertainty common to all countries (“global uncertainty”), region-specific uncertainty, and country-specific uncertainty. Among other findings, the estimates suggest that global uncertainty plays a primary role in explaining the volatility of inflation, interest rates, and stock prices, although to a varying extent over time, while all uncertainty components are found to play a nonnegligible role for real economic activity, credit, and money for most countries. Supplementary materials for this article are available online.
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