The volatility of economic policy uncertainty

Tacye Hong and Paul Kattuman
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Paul Kattuman: Cambridge Judge Business School, University of Cambridge

Working Papers from Cambridge Judge Business School, University of Cambridge

Abstract: Theory as well as empirics suggest that both the level and the volatility of uncertainty impact important economic variables. There is a need to extend models of uncertainty to the volatility of uncertainty. We analyse the dynamics of the Economic Policy Uncertainty index developed by (Baker et al., 2016) and show that for four major economies in Europe – France, Germany, Italy and the UK – between 1997 and 2019, considerable portions of both the level and the volatility of economic policy uncertainty were generated by spillovers. Spillovers in the volatility of economic policy uncertainty was higher than spillovers in levels during major crises. These findings are relevant to the appraisal of economic policy uncertainty episodes in major trading partners.

Date: 2021-10
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Persistent link: https://EconPapers.repec.org/RePEc:jbs:wpaper:202101

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