The measures were derived from the time-varying volatility of model-based forecast errors of a broad selection of macroeconomic and financial market time series. Based on this definition, we developed measures of economic uncertainty for 16 euro area trading partners, together accounting for around 70% of world GDP (excluding the euro area). define economic uncertainty as the “conditional volatility of a disturbance that is unforecastable from the perspective of economic agents”, with an increase in uncertainty generally being associated with a growing difficulty of predicting future economic outcomes. In this box we present synthetic measures of time-varying macroeconomic uncertainty. Several proxies have been proposed, such as indicators based on stock market volatility, counts of the word “uncertainty” in newspaper articles and measures based on disagreement between professional forecasters. While the literature goes some way towards defining the concept of uncertainty, including by setting it apart from risk and confidence, there is no single commonly accepted measure of uncertainty. Economic uncertainty can stem from different sources and is characterised by a situation in which agents cannot contemplate all the possible states of nature or characterise their probability distributions. Since uncertainty cannot be observed directly, proxies are generally used. The long-term coefficient of the elasticity of imports to domestic demand is restricted to one. In order to capture long-term factors such as shifts in non-price competitiveness or changes in trade openness, non-linear deterministic trends are also included in the long-run relationships. , measures of import intensity-adjusted demand (IAD) are computed by weighting the components of domestic demand according to their import content derived from global input-output tables. The models relate import volumes to domestic demand components, commodity prices and relative import prices. Contributions are obtained from individual countries’ error-correction models. Notes: Aggregation of 18 countries representing approximatively 75% of euro area foreign demand. Drivers of world imports (excluding the euro area)
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