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The Impact of US Uncertainty Shocks on a Panel of Advanced and Emerging Market Economies: The Role of Exchange Rate, Trade and Financial Channels

Rangan Gupta (), Godwin Olasehinde-Williams () and Mark Wohar ()

No 201857, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we analyze the spillovers of uncertainty from the United States (US) on Gross Domestic Product (GDP) in a large panel of 50 advanced and emerging economies. We allow the response of GDP in each country to vary according to its exchange rate regime, trade openness, and a vulnerability index (based on current account, foreign reserves, inflation, and external debt). We observe large heterogeneity in the response of advanced and emerging economies to uncertainty surprises of the US. In response to an increase in US uncertainty, GDP in foreign economies drops about as much as it does in the US. In addition we find that, for advanced economies trade intensity with the US and the exchange rate regime account for a large portion of the contraction in activity. In emerging economies, however, the responses do not depend on the exchange rate regime, but are larger when trade openness is high and vulnerability is low.

Keywords: US uncertainty; Foreign spillovers; Local projection; Macroeconomic transmission; Panel data (search for similar items in EconPapers)
JEL-codes: C32 C33 F4 G3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2018-09
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