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Time-Varying Effects of Financial Uncertainty Shocks on Macroeconomic Fluctuations in Peru

Author

Listed:
  • Mauricio Alvarado

    (Pontificia Universidad Católica del Perú.)

  • Gabriel Rodríguez

    (Departamento de Economía de la Pontificia Universidad Católica del Perú.)

Abstract

This article employs a family of VAR models with time-varying parameters and stochastic volatility (TVP-VAR-SV) to estimate the impact of external financial uncertainty shocks on a set of macroeconomic variables in Peru for the period from 1996Q1 to 2022Q4. The main findings can be summarized as follows: (i) a simple VAR model with stochastic volatility is sufficient to capture uncertainty dynamics compared to TVP-VAR alternatives; (ii) uncertainty shocks have a negative and significant impact on private investment growth in the medium and long term; (iii) the impact on private investment growth is three times greater than that on GDP growth; (iv) uncertainty shocks behave like aggregate supply shocks, leading to an increase in the inflation rate; and (v) uncertainty shocks have stronger effects in scenarios characterized by unfavorable financial conditions. JEL Classification-JE: C11, C32, E32, F41, F62.

Suggested Citation

  • Mauricio Alvarado & Gabriel Rodríguez, 2024. "Time-Varying Effects of Financial Uncertainty Shocks on Macroeconomic Fluctuations in Peru," Documentos de Trabajo / Working Papers 2024-531, Departamento de Economía - Pontificia Universidad Católica del Perú.
    • Handle: RePEc:pcp:pucwps:wp00531
    DOI: 10.18800/2079-8474.0531
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    More about this item

    Keywords

    Macroeconomic Fluctuations; Financial Uncertainty Shocks; Autoregressive Vectors with Time-Varying Parameters; Stochastic Volatility; Bayesian Estimation and Comparison; Peruvian Economy.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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