M. Hashem Pesaran
University of Southern California
Information about this author at RePEc
NBER Working Papers and Publications
|February 2018||Uncertainty and Economic Activity: A Multi-Country Perspective|
with Ambrogio Cesa-Bianchi, Alessandro Rebucci: w24325
Measures of economic uncertainty are countercyclical, but economic theory does not provide definite guidance on the direction of causation between uncertainty and the business cycle. This paper proposes a new multi-country approach to the analysis of the interaction between uncertainty and economic activity, without a priori restricting the direction of causality. We develop a multi-country version of the Lucas tree model with time-varying volatility and show that in addition to common technology shocks that affect output growth, higher-order moments of technology shocks are also required to explain the cross country variations of the realized volatility of equity returns. Using this theoretical insight, two common factors, a ‘real’ and a ‘financial’ one, are identified in the empirical an...
|January 2007||Global Business Cycles and Credit Risk|
with Til Schuermann, Bjorn-Jakob Treutler
in The Risks of Financial Institutions, Mark Carey and René M. Stulz, editors
|July 2005||Global Business Cycles and Credit Risk|
with Til Schuermann, Björn-Jakob Treutler: w11493
The potential for portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. Using a global vector autoregressive macroeconomic model accounting for about 80% of world output, we propose a model for exploring credit risk diversification across industry sectors and across different countries or regions. We find that full firm-level parameter heterogeneity along with credit rating information matters a great deal for capturing differences in simulated credit loss distributions. These differences become more pronounced in the presence of systematic risk factor shocks: increased parameter heterogeneity reduces shock se...