The role of uncertainty, sentiment and cross-country interactions in G7 output dynamics

Garratt, Anthony; Lee, Kevin; Shields, Kalvinder

Abstract

Output fluctuations in the G7 are characterised using a VAR model of countries' actual and expected outputs and uncertainty over these. New measures are developed to quantify the relative importance of economic prospects-versus-uncertainty, global-versus-national effects and fundamentals-versus-sentiment for countries' persistent output movements. National and global contributions are found to be equally important across the G7 although considerable differences exist between countries. Uncertainty, and especially cross-country uncertainty, is important in propagating the effects of shocks and generates around 20% of countries' persistent output movements on average. Fundamentals dominate output movements although, with an 80:20 split, sentiment plays a non-negligible role.

Citation

Garratt, A., Lee, K., & Shields, K. (2018). The role of uncertainty, sentiment and cross-country interactions in G7 output dynamics. Canadian Journal of Economics / Revue Canadienne d'Économique, 51(2), 391-418. https://doi.org/10.1111/caje.12325

• Journal Article Type: Article
• Acceptance Date: Mar 28, 2017
• Online Publication Date: May 3, 2018
• Publication Date: May 3, 2018
• Deposit Date: Apr 19, 2017
• Publicly Available Date: May 4, 2020
• Journal: Canadian Journal of Economics
• Print ISSN: 0008-4085
• Electronic ISSN: 1540-5982
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 51
• Issue: 2
• Pages: 391-418
• DOI: https://doi.org/10.1111/caje.12325
• Keywords: Uncertainty, Sentiment, Fundamentals, Survey Expectations, Global Shocks, National Shocks
• Public URL: https://nottingham-repository.worktribe.com/output/931010
• Publisher URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/caje.12325
• Additional Information: This is the peer reviewed version of the following article, which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1111/caje.12325. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
• Contract Date: Apr 19, 2017