Tracking Global Economic Uncertainty: Implications for the Euro Area

This paper sheds light on the impact of global macroeconomic uncertainty on the euro area economy. We build on the methodology proposed by Jurado et al. (Am Econ Rev 105(3):1177–1216, 2015) and estimate a global measure of economic uncertainty using data for fifteen large euro area trade partners and the euro area. Our measure displays a clear counter-cyclical pattern and lines up well to a wide range of historical events generally associated with heightened uncertainty. In addition, following Piffer and Podstawski (Econ J 128(616):3266–3284, 2018), we estimate a proxy SVAR where we instrument uncertainty shocks with changes in the price of gold around specific past events. We find that global uncertainty shocks have historically been important drivers of fluctuations in euro area economic activity, with one standard deviation increase in the identified uncertainty shock subtracting around 0.12 percentage points from euro area industrial production in the first months following the shock.