On the time-varying effects of economic policy uncertainty on the US economy
Jan Prüser and
No 761, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen
We study the time-varying impact of Economic Policy Uncertainty (EPU) on the US Economy by using a VAR with time-varying coefficients. The coefficients are allowed to evolve gradually over time which allows us to discover structural changes without imposing them a priori. We find three different regimes which match the three major business cycles of the US economy, namely the Great Inflation, the Great Moderation and the Great Recession. This finding is in contrast to previous literature which typically imposes two regimes a priori. Furthermore, we distinguish the effect of EPU on real economic activity and on financial markets.
Keywords: TVP-FAVAR; economic policy uncertainty; fat data (search for similar items in EconPapers)
JEL-codes: C11 C32 E20 E60 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:761
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