The Austrian National bank funds Niko Hauzenberger’s research project on “Non-parametric volatility modeling in macroeconomics and finance” at the PLUS Department of Economics.

The global outbreak of the Covid-19 pandemic led to unprecedented increases in the variance of many key macroeconomic and financial quantities such as output, unemployment, and stock prices. Existing volatility models have difficulties in capturing this sort of non-linearities in the conditional variance because they assume smoothly evolving variances.

This project sets forth a research agenda to develop and apply more flexible volatility models for macroeconomic and financial data. First, we focus on univariate non-parametric stochastic volatility models that remain agnostic on the precise law of motion of the variance process. In a second step, we extend these models to multivariate time series. In a final step, our aim is to propose a mixed frequency multivariate stochastic volatility. We will illustrate the models developed in this project through various now- and forecasting applications. Apart from focusing on predictions, our models can be used to produce timely indicators of macroeconomic stability which can be used as monitoring tools.