Fear Thy Neighbor: Spillovers from Economic Policy Uncertainty
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Summary:
High levels of economic policy uncertainty in various parts of the world revamped the de- bate about its impact on economic activity. With increasingly stronger economic, fi nancial, and political ties among countries, economic agents have more reasons to be vigilant of for- eign economic policy. Employing heterogeneous panel structural vector autoregressions, this paper tests for spillovers from economic policy uncertainty on other countries' economic ac- tivity. Furthermore, using local projections, the paper zooms in on shocks originating in the United States, Europe, and China. Our results suggest that economic policy uncertainty re- duces growth in real output, private consumption, and private investment, and that spillovers from abroad account for about two-thirds of the negative effect. Moreover, uncertainty in the United States, Europe, and China reduces economic activity in the rest of the world, with the effects being mostly felt in Europe and the Western Hemisphere.
Series:
Working Paper No. 2017/240
Subject:
Financial markets Financial sector policy and analysis GDP forecasting National accounts Private consumption Private investment Spillovers Stock markets
English
Publication Date:
November 15, 2017
ISBN/ISSN:
9781484325032/1018-5941
Stock No:
WPIEA2017240
Pages:
34
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