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The Impact of US Uncertainty on the Euro Area in Good and Bad Times: Evidence from a Quantile Structural Vector Autoregressive Model

Rangan Gupta (), Chi Keung Lau and Mark Wohar ()

No 201681, Working Papers from University of Pretoria, Department of Economics

Abstract: We estimate a quantile structural vector autoregressive model for the Euro Area to assess the real effects of uncertainty shocks in expansions and recessions using monthly data covering the period of 1999:02 to 2016:05. Domestic and foreign (US) uncertainty shocks hitting during recessions are found to produce a relatively overall stronger negative impact on output growth than in expansions. Inflation, in general, is unaffected from a statistical perspective. Our results tend to suggest that policymakers need to implement state-dependent policies, with stimulus policies being more aggressive during recessions – something we see from our results in terms of stronger declines in the interest rate during bad times.

Keywords: Economic Policy Uncertainty; US-Euro Area Spillovers; Quantile Structural Vector Autoregressive Model (search for similar items in EconPapers)
JEL-codes: C32 E32 E60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2016-11
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201681

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