Uncertainty shocks in emerging economies: A global to local approach for identification

Mirela S. Miescu

European Economic Review, 2023, vol. 154, issue C

Abstract: The paper investigates the effects of uncertainty shocks in emerging economies (EMEs). I construct novel measures of uncertainty for fifteen small EMEs and to address endogeneity I instrument them with fluctuations in global uncertainty. My results show that uncertainty shocks have substantial contractionary effects on GDP, stock prices and local currencies and the recessionary effect is much stronger in EMEs compared to advanced economies (AEs). I also estimate a negative co-movement between prices and output which triggers a delayed monetary tightening in correspondence to the inflationary peak. Counterfactual scenarios reveal that in the absence of uncertainty shocks, the fall in GDP recorded in EMEs during the 2008–2009 crisis would have been attenuated by around 2%.

Keywords: Uncertainty shocks; Panel VAR; Instrumental variables; Emerging economies (search for similar items in EconPapers)
JEL-codes: C11 C3 E3 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:154:y:2023:i:c:s0014292123000661

DOI: 10.1016/j.euroecorev.2023.104437

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