Fluctuations in global output volatility
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Output volatilityTradeFactor modelModel uncertainty
Lorenzo Ductor, Danilo Leiva-León, Fluctuations in global output volatility, Journal of International Money and Finance, Volume 120, 2022, 102533, ISSN 0261-5606, [https://doi.org/10.1016/j.jimonfin.2021.102533]
SponsorshipBanco de Espana or Eurosystem PID2019-111708GA-I00 MCIN/AEI/10.13039/501100011033
In this paper, we dissect the time-varying output volatility of the main world economies to study its dynamics, spillovers, and determinants, from a global perspective. Our analysis relies on a hierarchical volatility factor model and Bayesian model averaging. We show that the increasing comovement observed in international macroeconomic volatility is substantially larger in developing than in developed countries. Instead, developed countries have exhibited more asymmetric volatility shocks than developing countries in recent times. We also show that, although the downward trend in global volatility is related with increasing trade, idiosyncratic changes in volatility are highly influenced by domestic monetary policies. However, due to the declining role played by these idiosyncratic components over time, policymakers currently face greater constraints when it comes to stabilizing output fluctuations.