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The Impact of Macroeconomic Uncertainty on Activity in the Euro Area

Author

Listed:
  • Gieseck Arne

    (European Central Bank, Sonnemannstraße 20, 60314 Frankfurt, Germany)

  • Largent Yannis

    (European Central Bank, Sonnemannstraße 20, 60314 Frankfurt, Germany)

Abstract
The impact of macroeconomic uncertainty on activity has been a subject of heightened interest in recent years. Empirical literature typically focuses on the US or on individual euro area countries by using the VAR approach. However, there is limited quantitative evidence about the impact of uncertainty on euro area activity available as yet. In this paper, we derive measures of macroeconomic uncertainty in the euro area from an encompassing dataset, and single out some indicators of uncertainty based on theoretical plausibility and empirical evidence. From this set of indicators, we derive an aggregate measure of macroeconomic uncertainty in the euro area. Using a multivariate structural VAR approach, we then offer some quantitative evidence on the impact of macroeconomic uncertainty on euro area activity during the period 1999–2015. Our main findings show that heightened macroeconomic uncertainty, as measured by the proposed indicators, does have a strongly adverse impact on activity in the euro area, albeit the deepness and duration of the shocks differ somewhat across uncertainty measures.

Suggested Citation

  • Gieseck Arne & Largent Yannis, 2016. "The Impact of Macroeconomic Uncertainty on Activity in the Euro Area," Review of Economics, De Gruyter, vol. 67(1), pages 25-52, May.
    • Handle: RePEc:lus:reveco:v:67:y:2016:i:1:p:25-52:n:3
    DOI: 10.1515/roe-2015-1008
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    References listed on IDEAS

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    Cited by:

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    2. Bellotti, Anthony & Brigo, Damiano & Gambetti, Paolo & Vrins, Frédéric, 2021. "Forecasting recovery rates on non-performing loans with machine learning," International Journal of Forecasting, Elsevier, vol. 37(1), pages 428-444.
    3. Paolo Gambetti & Francesco Roccazzella & Frédéric Vrins, 2022. "Meta-Learning Approaches for Recovery Rate Prediction," Risks, MDPI, vol. 10(6), pages 1-29, June.
    4. Śmiech, Sławomir & Papież, Monika & Shahzad, Syed Jawad Hussain, 2020. "Spillover among financial, industrial and consumer uncertainties. The case of EU member states," International Review of Financial Analysis, Elsevier, vol. 70(C).
    5. Alina Bobasu & Lucia Quaglietti & Martino Ricci, 2024. "Tracking Global Economic Uncertainty: Implications for the Euro Area," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 820-857, June.
    6. Saygin Sahinoz & Evren Erdogan Cosar, 2020. "Quantifying uncertainty and identifying its impacts on the Turkish economy," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(2), pages 365-387, May.
    7. de Bondt, Gabe & Gieseck, Arne & Zekaite, Zivile & Herrero, Pablo, 2019. "Disaggregate income and wealth effects in the largest euro area countries," Working Paper Series 2343, European Central Bank.
    8. Hamish Burrell & Joaquin Vespignani, 2021. "The Industrial Impact of Economic Uncertainty Shocks in Australia," Economic Papers, The Economic Society of Australia, vol. 40(3), pages 248-271, September.
    9. Burrel, Hamish & Vespignani, Joaquin L., 2020. "Industrial Impact of Economic Uncertainty Shocks in Australia: Revised," MPRA Paper 104117, University Library of Munich, Germany.
    10. Dimitrios Sideris & Georgia Pavlou, 2021. "Disaggregate income and wealth effects on private consumption in Greece," Working Papers 293, Bank of Greece.
    11. Śmiech, Sławomir & Papież, Monika & Dąbrowski, Marek A., 2019. "How important are different aspects of uncertainty in driving industrial production in the CEE countries?," Research in International Business and Finance, Elsevier, vol. 50(C), pages 252-266.
    12. Quelhas, João, 2022. "Monetary Policy Uncertainty and its impact on the real economy: Empirical Evidence from the Euro area," MPRA Paper 113621, University Library of Munich, Germany, revised May 2022.
    13. Gabe Jacob de Bondt & Arne Gieseck & Zivile Zekaite, 2020. "Thick modelling income and wealth effects: a forecast application to euro area private consumption," Empirical Economics, Springer, vol. 58(1), pages 257-286, January.
    14. Mr. Christian H Ebeke & Jesse Siminitz, 2018. "Trade Uncertainty and Investment in the Euro Area," IMF Working Papers 2018/281, International Monetary Fund.
    15. Claeys, Peter & Vašíček, Bořek, 2019. "Transmission of uncertainty shocks: Learning from heterogeneous responses on a panel of EU countries," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 62-83.
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    17. Valentin Jouvanceau, 2023. "Consumer price rigidity in periods of low and high inflation: the case of Lithuania," Bank of Lithuania Discussion Paper Series 34, Bank of Lithuania.

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    More about this item

    Keywords

    consumption; growth; investment; uncertainty; structural VAR model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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