High levels of economic policy uncertainty in various parts of the world revamped the debate about its impact on economic activity. With increasingly stronger economic, financial, and political ties among countries, economic agents have more reasons to be vigilant of foreign economic policy. Employing heterogeneous panel structural vector autoregressions, this paper tests for spillovers from economic policy uncertainty on other countries' economic activity. 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 reduces 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.

Since the outbreak of the Global Financial Crisis (GFC) in 2008, some events in key advanced and emerging economies contributed to a notable increase in economic policy uncertainty (EPU). In the United States (US), for example, discussions over the debt ceiling, threats of trade agreement annulments and re-negotiations, and the possibility of a fiscal expansion financed by changes to the tax system made policies harder to predict and resulted in repercussions for partner countries. In Europe, Brexit negotiations, fiscal challenges, and major elections in some countries had similar effects. In China, the leadership transition and currency adjustments had local effects, but also generated global spillovers. In some instances, regional and global events-rather than country-specific ones-marked steep increases in global uncertainty, as in the case of the Arab spring and the immigration crisis in Europe, among others.High levels of EPU revamped the debate about its impact on economic activity. While EPU has commonly a negative connotation, its sole meaning refers to uncertainty surrounding future policy, which does not necessarily imply a higher probability of implementing a policy that yields a worse

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The COVID-19 pandemic and associated policy responses triggered a historically large wave of capital reallocation between markets and asset classes. Using high-frequency country-level data, this paper examines if and how the number of COVID cases, the stringency of the lockdown, and the fiscal and monetary policy response determined the dynamics of portfolio flows. Despite more dominant global factors, we find that these domestic factors played an important role, particularly for emerging markets and bond flows, contributing to a global wave of reallocation to safer asset classes. Our results indicate that rising domestic COVID cases had a strong positive effect on portfolio flows, which responded to an increase in financing needs in affected economies. Lockdown and fiscal policy measures also led to an increase in portfolio flows; however, evidence from the CDS market suggests that the increase in flows was dominated by supply forces, reflecting investors' preference for stronger policy responses. In contrast, we find that interest rate cuts led to a decline in portfolio flows as investors searched for higher yield. Finally, we show that COVID policy responses also affected countries' exposure to the global shock and that pre-COVID macroeconomic conditions, such as lower sovereign risk and higher trade openness, contributed to larger flows during the COVID episode.

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