Level Of Macroeconomic Uncertainty Research Articles

The effect of uncertainty on the sensitivity of the yield curve to monetary policy surprises

I examine how the level of uncertainty affects the sensitivity of the U.S Treasury yield curve to monetary policy surprises. My analysis is based on a nonlinear dynamic Nelson-Siegel model of bond yields with regime shifts that depend on the level of macroeconomic uncertainty. The dynamics of the entire yield curve are captured by three latent factors, level, slope, and curvature, with exogenous monetary policy surprises affecting the yield curve through the factors. I find that uncertainty and the zero lower bound both play important roles in the yield curves reactions to monetary policy surprises. Specifically, during the ZLB period there is a significant increase in the sensitivity of the yield curve when uncertainty is high, with the differences being primarily in terms of the level and slope factors.

The Effect of Uncertainty on the Sensitivity of the Yield Curve to Monetary Policy Surprises

I examine how the level of uncertainty affects the sensitivity of the U.S Treasury yield curve to monetary policy surprises. My analysis is based on a nonlinear dynamic Nelson-Siegel model of bond yields with regime shifts that depend on the level of macroeconomic uncertainty. The dynamics of the entire yield curve are captured by three latent factors, level, slope, and curvature, with exogenous monetary policy surprises affecting the yield curve through the factors. I find that uncertainty and the zero lower bound both play important roles in the yield curve’s reactions to monetary policy surprises. Specifically, during the ZLB period there is a significant increase in the sensitivity of the yield curve when uncertainty is high, with the differences being substantial in terms of the level and curvature factors.

Private Sector Credit and Inflation Volatility

This paper investigates the effect of inflation volatility on private sector credit growth. The results indicate that private sector credit growth is positively linked to the one period lagged inflation volatility. Given that past monetary policy actions continue to affect the targeted variables due to the substantial lags in the transmission mechanism, the positive response of private sector credit growth to past inflation volatility suggests a credible monetary policy regime in Uganda, which has led to a reduction in the level of macroeconomic uncertainty and the restoration of favorable economic conditions and prospects, thus increasing the demand for credit. Further, the study finds that the lagged private sector credit growth, nominal exchange rate, and inflation have a statistically significant effect on private sector credit growth while financial innovation, interest rates, and GDP growth appear not to be important determinants of private sector credit growth. The robustness of our findings is confirmed by sensitivity checks.

Does the volatility of commodity prices reflect macroeconomic uncertainty?

While there exists numerous studies on the macroeconomic effects of oil and commodity shocks, the literature is quite silent on the impact of macroeconomic uncertainty on oil and commodity prices and, especially, on their volatility. This paper tackles this issue through the estimation of a structural threshold vector autoregressive (TVAR) model on a sample of 19 commodity markets. We aim at (i) assessing whether the effect of macroeconomic uncertainty shocks on commodity price returns depends on the degree of uncertainty, and (ii) investigating the transfer from macroeconomic uncertainty to price uncertainty using a newly developed measure of commodity price uncertainty. Our findings show that both agricultural and industrial markets are highly sensitive to the variability and the level of macroeconomic uncertainty, while the impact on precious metals is more parsimonious given their well-identified safe-haven role in time of economic turmoil. In addition, we find evidence that the recent 2007–09 recession has generated an unprecedented episode of high uncertainty in numerous commodity prices. Interestingly, our analysis further reveals that volatility and uncertainty in prices can be disconnected. This is especially true for the oil market as most important shocks in the 1990s and the beginning of the 2000s that lead to price volatility do not generate price uncertainty, highlighting the relevance of our uncertainty measure in linking uncertainty to predictability rather than to volatility.

Macroeconomic Uncertainty, State Ownership, and Board Size in China

This paper examines the impacts of macroeconomic uncertainty, state ownership and board composition on firm performance. First, we find state ownership is negatively related to firm performance measured by return on assets and Tobin’s Q. However, Tobin’s Q increases with state ownership when firms face a higher level of macroeconomic uncertainty. The strong positive incremental effect of state ownership on Tobin’s Q is robust when controlling for possible endogeneity. Second, we add evidence to the negative relationship between board size and firm performance. But we further show that Tobin’s Q increases with board size when the level of macroeconomic uncertainty is high. Our results indicate that connections/resources provided by directors and through the ownership arrangement are valuable to cope with macroeconomic uncertainty.

Does the Volatility of Commodity Prices Reflect Macroeconomic Uncertainty?

While there exists numerous studies on the macroeconomic effects of oil and commodity shocks, the literature is quite silent on the impact of macroeconomic uncertainty on oil and commodity prices and, especially, on their volatility. This paper tackles this issue through the estimation of a threshold vector autoregressive (TVAR) model on a sample of 19 commodity markets. We aim at (i) assessing whether the effect of macroeconomic uncertainty shocks on commodity price returns depends on the degree of uncertainty, and (ii) investigating the transfer from macroeconomic uncertainty to price uncertainty using a newly developed measure of commodity price uncertainty. Our findings show that both agricultural and industrial markets are highly sensitive to the variability and the level of macroeconomic uncertainty, while the impact on precious metals is more parsimonious given their well-identified safe-haven role in time of economic turmoil. In addition, we find evidence that the recent 2007-09 recession has generated an unprecedented episode of high uncertainty in numerous commodity prices. Interestingly, our analysis further reveals that volatility and uncertainty in prices can be disconnected. This is especially true for the oil market as most important shocks in the 1990s and the beginning of the 2000s that lead to price volatility do not generate price uncertainty, highlighting the relevance of our uncertainty measure in linking uncertainty to predictability rather than to volatility.

The dissent voting behaviour of central bankers: what do we really know?

We examine the determinants of the dissent in central bank boards voting records about monetary policy rates in the Czech Republic, Hungary, Sweden, the UK and the US. In contrast to previous studies, we consider 25 different macroeconomic, financial, institutional, psychological or preference-related factors jointly and use Bayesian model averaging (BMA) to formally assess the attendant model uncertainty. We find that the rate of dissent is between 5% and 20% for the examined central banks. Our results suggest that most of the examined regressors, including factors that capture the effects of inflation and output, are not robust determinants of voting dissent. This result suggests that unobserved characteristics of central bankers and different communication strategies drive the dissent, rather than the level of macroeconomic uncertainty.

An Evaluation of the Growth and Unemployment Forecasts in the ECB Survey of Professional Forecasters

In this paper we provide a comprehensive evaluation of the euro area GDP growth and unemployment rate forecasts collected in the quarterly ECB Survey of Professional Forecasters (SPF) over the period 1999Q1–2008Q4. Our results suggest that while SPF forecasts generally appear to be slightly superior to naive and purely backwardlooking benchmarks, forecast errors nonetheless exhibit a high degree of persistence. In addition, our analysis of the heterogeneity across individual SPF replies suggests that the broad pattern of the individual forecasts is essentially the same as that of the aggregate SPF results. This may refl ect a high degree of commonality in the information available (and not available) to panel members, thus leading them to get it wrong (or right) not only in the aggregate, but also individually. In particular, although a small number of forecasters perform substantially above average for some variables and horizons, none does so systematically for all variables and all horizons. Lastly, we have presented and assessed the information about forecast uncertainty provided by the SPF. In line with other studies based on the US SPF, disagreement among panel members does not appear to be a good proxy for overall macroeconomic uncertainty, i.e ., a high degree of consensus is not necessarily an indication of a low level of forecast uncertainty. Our analysis also suggests that, at the individual level, panel members may not fully internalise the overall level of macroeconomic uncertainty. For example, compared with the level of uncertainty indicated by the historical volatility of actual GDP growth and the unemployment rate, the perceptions of individual panel members about uncertainty appear quite low. This possible underestimation of overall uncertainty is much less severe when densities are aggregated across forecasters.

Information Externalities Along the Supply Chain: The Economic Determinants of Suppliers’ Stock Price Reaction to Their Customers’ Earnings Announcements

We study the economic determinants of the information externality suppliers experience at the time of their customers’ quarterly earnings announcements (QEAs). We measure the information externality as suppliers’ stock price reaction to their customers’ QEAs. We expect information externalities to arise because the information revealed in customers’ QEAs can revise investors’ expectations about the level of suppliers’ future earnings and cash flows, and or because it resolves uncertainty about those future earnings and cash flows. We find that the information externality experienced by suppliers is increasing in the: (1) magnitude of the new information disclosed at customers’ QEAs; (2) strength of the economic bond between the firms, (3) components of the earnings information disclosed by a customer, (4) level of macroeconomic uncertainty prevailing at the time of customers’ QEAs; and decreasing in suppliers’ earnings persistence. We also find that the information contained in customers’ QEAs leads to both a revision in beliefs about the level of suppliers’ future earnings, as well as to a resolution of uncertainty about such earnings. Our study adds to the literature which seeks to understand the economic factors that lead to cross-sectional differences in earnings informativeness. However, unlike prior studies which have focused on examining the factors that determine “own-firm” stock price reactions to earnings, we identify the economic factors that lead to cross-sectional differences in the informativeness of one firm’s earnings (e.g., a customer’s) to investors of a another, non-announcing firm (e.g., a supplier). Our study also extends prior research by documenting that information externalities are not limited to firms in the same industry but also extend to firms in the supply chain.

The Association between Macroeconomic Uncertainty and Analysts' Forecast Accuracy

This study examines whether macroeconomic uncertainty affects the forecast accuracy of financial analysts in an international setting. We use inflation and foreign exchange volatility as measures of macroeconomic uncertainty. We find strong evidence that forecast accuracy decreases in the level of macroeconomic uncertainty. Further, we document that the negative association between forecast accuracy and macroeconomic variables is more pronounced for emerging economies than developed economies. Overall our results suggest that macroeconomic uncertainty represents a unique dimension in the complexities associated with predicting future firm performance.

The new investment theory and aggregate dynamics

This paper develops a dynamic general-equilibrium model of capital adjustments under monopolistic competition. Investments are partially irreversible. The model includes microfoundations for consumption decisions and capital-adjustment strategies. The effects of the model parameters on the optimal capital-adjustment strategy are determined analytically. A major result is that the aggregate net investment is proportional to the difference between the desired and previous aggregate capital. The speed of adjustment decreases with the cost of reversibility, is invariant to the shares of labor and capital, and increases with the level of macroeconomic uncertainty. However, the latter effect is not quantitatively important.