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Transmission of uncertainty shocks: learning from heterogeneous responses on a panel of EU countries
Claeys, Peter ; Vašíček, Bořek
Numerous recent studies, starting with Bloom (2009), highlight the impact of varying uncertainty levels on economic activity. These studies mostly focus on individual countries, and cross-country evidence is scarce. In this paper, we use a set of (panel) BVAR models to study the effect of uncertainty shocks on economic developments in EU Member States. We explicitly distinguish between domestic, common and global uncertainty shocks and employ new proxies of uncertainty. The domestic uncertainty indicators are derived from the Business and Consumer Surveys administered by the European Commission. The common EU-wide uncertainty is subsequently derived by means of a factor model. Finally, the global uncertainty indicator – inspired by Jurado et al. (2015) – is extracted as a common factor from a broad set of forecast indicators that are not driven by the business cycle. The results suggest that real output in EU countries drops after spikes in uncertainty, mainly as a result of lower investment. Unlike for the U.S., there is little evidence of activity overshooting following this initial fall. The responses to uncertainty shocks vary across Member States. These differences can be attributed not mainly to different shock sizes, but rather to cross-country structural characteristics. Member States with more flexible labour markets and product markets seem to weather uncertainty shocks better. Likewise, a higher manufacturing share and higher economic diversification help dampen the impact of uncertainty shocks. The role of economic openness is more ambiguous.
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Spillover of the ECB's Monetary Policy Outside the Euro Area: How Different is Conventional From Unconventional Policy?
Babecká Kucharčuková, Oxana ; Claeys, Peter ; Vašíček, Bořek
This paper studies the macroeconomic impact of ECB policy on the euro area and six non-EMU countries. The analysis is based on the evolution of a synthetic index of overall euro area monetary conditions (MCI) that can be decomposed into conventional and unconventional policy measures. A standard monetary VAR including the MCI subcomponents shows that the transmission of unconventional monetary policy in the euro area is quite different than under conventional policy: prices react quickly, but the response of output (industrial production) is muted. A block-restricted VAR analysis confirms that euro area monetary policy spills over to the macroeconomic developments of non-EMU countries. While conventional monetary policy has a generalised effect on economic activity, exchange rates and prices, unconventional measures have generated a variety of responses. Exchange rates respond rather quickly, but an effect on the real economy is found only for some countries, and inflation remains largely unaffected.
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Measuring Sovereign Bond Spillover in Europe and the Impact of Rating News
Claeys, Peter ; Vašíček, Bořek
Although there is by now strong evidence that sovereign risk premia are driven by a common factor, little is known about the detailed linkages between sovereign bond markets. We employ the VAR method by Diebold and Yilmaz (2009) to analyse the strength and direction of bilateral linkages between EU sovereign bond markets using daily data on sovereign bond yield spreads and a common factor. The forecast-error variance decomposition of this FAVAR indicates a lot of heterogeneity in the bilateral spillover sent and received between bond markets. Spillover is more important than domestic factors for all eurozone countries. The CE countries mostly affect each other. Only Denmark, Sweden and the UK are rather insulated from spillover. The spillover has increased substantially since 2007, despite starting from a high level. We use this framework to measure the impact of sovereign rating news and analyse the dynamic linkages between spreads and the ratings of the main credit rating agencies. We find a two-sided relation between rating news and sovereign risk premia. The spillover of rating news is very heterogeneous, and it is substantially stronger for downgrades at lower grades. The impact is often weaker domestically than on bond spreads of other sovereigns. JEL
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