Asymmetry, Uncertainty and International Trade

Syed Hassan (s.shabi-ul-hassan@swansea.ac.uk), Sarosh Shabi (s.shabi@swansea.ac.uk) and Taufiq Choudhry
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Taufiq Choudhry: School of Business, University of Southampton

No 2018-24, Working Papers from Swansea University, School of Management

Abstract: This paper studies the role of economic policy uncertainty on the US trade with Canada, China, Germany, Japan and the United Kingdom. This paper contributes to the literature by analysing the asymmetric impact of policy uncertainty on the US trade from December 1989 to December 2016. Results suggest that there is a negative relationship between the economic policy uncertainty and the US trade flows. Further, US trade responds more sensitively to rise in the uncertainty as compared to an equal negative shock, confirming the asymmetric hypothesis both in the short and long run. Comparing the respective uncertainty indices, US EPU has a significantly greater impact on the trade relative to the EPU of its trading partners. These findings have both demand and supply side implications i.e. increase in the economic policy uncertainty can reduce the aggregate consumption significant as well as due to uncertain profit margins, businesses can choose to delay long term investment projects and inventory levels resulting in a wide spread recessionary effect on the US business cycle.

Keywords: Economic policy uncertainty; international trade. (search for similar items in EconPapers)
JEL-codes: E3 E32 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-02-28
New Economics Papers: this item is included in nep-int and nep-mac
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:swn:wpaper:2018-24

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