Transmission of US and EU Economic Policy Uncertainty Shock to Asian Economies in Bad and Good Times

Mehmet Balcilar, Zeynel Ozdemir (), Huseyin Ozdemir () and Mark Wohar ()
Additional contact information
Huseyin Ozdemir: Gazi University

No 13274, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This study empirically examines the fragility of five major Asian economies (China, Hong Kong, India, Japan, and South Korea) to economic policy uncertainty (EPU) of US and EU, and oil prices in different state of the economies. To investigate these dynamics, we use the relative tail dependence by means of the spillover index of Diebold and Yilmaz (2009, 2012) obtained from Quantile Vector Autoregressive (QVAR) model, a robust and semiparametric model, which does not require specification of the full distribution of error terms. The distinguishing feature of our approach from the previous studies is the determination of sign and intensity of asymmetric spillover dynamics from external shocks to Asian economies and variables covering a wide range of macroeconomic aspects. Our results indicate that the spillover indices from EPU and oil price shocks to Asian economies significantly vary across quantiles. The results from sub-sample analysis show that the US EPU has an asymmetric effect on macro variables of China, Hong Kong, and South Korea during the quantitative easing period (QE) and the reverse QE (RQE) periods while the EU EPU makes Asian markets vulnerable during the Eurozone debt crisis. The large-scale asset purchases (LSAPs) of ECB and BoJ seem to reduce Asian market fragilities after 2015. Last but not least, we get partial evidence to support an asymmetric effect of the crude oil shocks on some Asian markets.

Keywords: quantile VAR; oil price change; economic policy uncertainty; relative-tail-dependence (search for similar items in EconPapers)
JEL-codes: C32 E44 F42 G01 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published - published as 'Effectiveness of monetary policy under the high and low economic uncertainty states: evidence from the major Asian economies' in: Empirical Economics, 2022, 63, 1741–1769

Downloads: (external link)
https://docs.iza.org/dp13274.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp13274

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().