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Economic policy uncertainty shocks, economic activity, and exchange rate adjustments

Rachatar Nilavongse, Michał Rubaszek () and Gazi Uddin ()

Economics Letters, 2020, vol. 186, issue C

Abstract: We investigate the impact of foreign and domestic economic policy uncertainty (EPU) shocks on the UK economy. Simulations with a structural VAR model indicate that domestic industrial production declines after a shock to the EPU index in the US. On the contrary, disturbances to domestic uncertainty are an important source of real exchange rate fluctuations. Historical decomposition shows that a surge in domestic EPU after Brexit referendum was the reason behind a massive depreciation of the British pound. These results are robust to different model specifications.

Keywords: Brexit; Globalization; Policy uncertainty; Real exchange rate; Structural vector autoregressions (search for similar items in EconPapers)
JEL-codes: C1 E2 F2 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econlet.2019.108765

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