IMF Working Papers

Fear Thy Neighbor: Spillovers from Economic Policy Uncertainty

By Nina Biljanovska, Francesco Grigoli, Martina Hengge

November 15, 2017

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Nina Biljanovska, Francesco Grigoli, and Martina Hengge. Fear Thy Neighbor: Spillovers from Economic Policy Uncertainty, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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, fi nancial, 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.

Subject: Financial markets, Financial sector policy and analysis, GDP forecasting, National accounts, Private consumption, Private investment, Spillovers, Stock markets

Keywords: Asia and Pacific, China, China EPU, Dependent variable, Economic activity, Economic policy uncertainty, EPU index, EPU sample, EPU shock, Europe, Europe EPU, GDP forecasting, Lag US EPU, Middle East and Central Asia, Private consumption, Private investment, Real GDP, Spillover, Spillovers, Spillovers of EPU from the US, Stock markets, Uncertainty in the United States, United States, Western Hemisphere, WP

Publication Details

  • Pages:

    34

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/240

  • Stock No:

    WPIEA2017240

  • ISBN:

    9781484325032

  • ISSN:

    1018-5941

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