Monetary Policy Uncertainty in the United States and Investment Sentiment in Advanced Economies

Azad Nahiyan Faisal and Apostolos Serletis
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Azad Nahiyan Faisal: Department of Economics, University of Wisconsin – Parkside, Kenosha, WI 53144, USA

Studies in Nonlinear Dynamics & Econometrics, 2025, vol. 29, issue 4, 447-467

Abstract: How does uncertainty originating from the future path taken by monetary policy enacted by the Federal Reserve in the United States affect the business confidence in other advanced economies? Does US monetary policy uncertainty affect economic activity in the United States and in Canada, France, Germany, Italy, Japan, and the United Kingdom. Motivated to answer these questions, we use monthly data and a bivariate GARCH-in-Mean VAR model. We also use a multivariate structural VAR model and a different measure of US monetary policy uncertainty, achieving identification by a combination of short-run and long-run restrictions. Our evidence shows that US monetary policy uncertainty, irrespective of how it is measured, has negative effects on the business confidence and output in the advanced G7 economies.

Keywords: G7; monetary policy uncertainty; investor sentiment; GARCH-in-Mean VAR; structural VAR (search for similar items in EconPapers)
JEL-codes: C32 D12 O57 Q43 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/snde-2023-0108

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