Fear Thy Neighbor: Spillovers from Economic Policy Uncertainty

Nina Biljanovska, Francesco Grigoli () and Martina Hengge ()

No 2017/240, IMF Working Papers from International Monetary Fund

Abstract: High levels of economic policy uncertainty in various parts of the world revamped the de- bate about its impact on economic activity. With increasingly stronger economic, financial, and political ties among countries, economic agents have more reasons to be vigilant of for- eign economic policy. Employing heterogeneous panel structural vector autoregressions, this paper tests for spillovers from economic policy uncertainty on other countries' economic ac- tivity. Furthermore, using local projections, the paper zooms in on shocks originating in the United States, Europe, and China. Our results suggest that economic policy uncertainty re- duces growth in real output, private consumption, and private investment, and that spillovers from abroad account for about two-thirds of the negative effect. Moreover, uncertainty in the United States, Europe, and China reduces economic activity in the rest of the world, with the effects being mostly felt in Europe and the Western Hemisphere.

Keywords: WP; economic activity; EPU shock; real GDP; dependent variable; Economic policy uncertainty; China; Europe; private consumption; private investment; spillover; United States; Europe EPU; China EPU; lag US EPU; EPU index; Spillovers; Stock markets; GDP forecasting; Western Hemisphere; Asia and Pacific; Middle East and Central Asia; uncertainty in the United States; spillovers of EPU from the US; EPU sample (search for similar items in EconPapers)
Pages: 34
Date: 2017-11-15
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Citations: View citations in EconPapers (26)

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Journal Article: Fear thy neighbor: Spillovers from economic policy uncertainty (2021)
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