Economic Policy Uncertainty in Europe: Spillovers and Common Shocks

Jaromir Baxa and Tomáš Šestořád

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper proposes a novel approach to decompose the Economic Policy Uncertainty indices of European countries into the common and country-specific components using the time-varying total connectedness. Then, by employing a Bayesian panel VAR model, we assess how common and country-specific uncertainty shocks influence economic activity, prices, and monetary policy, with the shocks identified using zero and sign restrictions. Our results reveal that only common shocks have significant effects on all macroeconomic variables. This result is robust across alternative samples and structural identifications. Therefore, our findings imply that policymakers should focus on uncertainty shocks that are synchronized across countries.

Keywords: Common uncertainty; economic policy uncertainty; panel VAR; spillovers (search for similar items in EconPapers)
JEL-codes: C32 F42 F45 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-cba, nep-eec and nep-opm
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Related works:
Working Paper: Economic Policy Uncertainty in Europe: Spillovers and Common Shocks (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2024/9

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