Global Uncertainty Shocks and Their Effects on LATAM Financial Markets and the Aggregate Economy

Fernando Pérez Forero ()

No 2026-008, Working Papers from Banco Central de Reserva del Perú

Abstract: The increase in uncertainty has harmful effects on both financial markets and the aggregated economy. At a global level, we have observed events that are known to have increased uncertainty and volatility in different indicators, especially the recent announcements associated with changes in trade policies (2025). These shocks generally involve an increase in indicators such as the VIX (volatility), the EPU (economic policy uncertainty), as well as collateral effects in both advanced and emerging financial markets. These effects are generally observed as a supply shock, generating higher inflation and lower economic activity. In this context, we seek to measure the impact of this type of combined shock on Latin American financial markets (measured through the EMBI, the exchange rate, and stock market indexes), as well as on activity and inflation. The countries analyzed are Brazil, Chile, Colombia, Mexico, and Peru, and the sample includes monthly data from January 2004 to September 2025. To quantify these effects, we estimated a Bayesian Hierarchical Panel VAR model, which has an external block that represents global markets and is not affected by shocks in the LATAM block. The global uncertainty shocks are identified through zero and sign restrictions. Results indicate that these shocks produce a favorable effect on the financial markets of the economies under analysis, in terms of a strengthened currency, lower country risk, and a temporary expansion in the stock market.

Keywords: Panel Bayesian Vector Autorregressions; Uncertainty (search for similar items in EconPapers)
JEL-codes: C23 E44 (search for similar items in EconPapers)
Date: 2026-04
New Economics Papers: this item is included in nep-fdg and nep-ifn
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