Cross-country categorical economic policy uncertainty spillovers: evidence from a conditional connectedness TVP-VAR framework

Abstract

Purpose This study aims to investigate the dynamic interconnectedness of economic policy uncertainty (EPU), fiscal policy uncertainty (FPU) and monetary policy uncertainty (MPU) in four nations, the USA, Japan, Greece and South Korea, between 1998 and 2021. Design/methodology/approach To comprehend the cross-category/cross-country evolution of uncertainty connectedness, the authors use the conditional connectedness approach. By using an inclusive network, this strategy lessens the bias caused by omitted variables. The TVP-VAR method is advantageous as it eliminates outliers that may potentially skew the results and reduces the bias caused by picking arbitrary rolling windows. Findings Based on the findings, aggregate EPU is a net transmitter of policy uncertainties across all countries when conditional-country connectedness is used. MPU receives significantly more spillovers than FPU does across all countries, even though both are primarily recipients of uncertainties. The USA appears to be a transmitter of categorical spillovers before COVID-19, while Greece appears to be a net receiver of all category spillovers in terms of category-specific connectedness. The existence of extreme global events is also seen to cause an increase in category-specific and country-specific connectedness. Additionally, the authors report that conditional country-specific connectedness is greater than conditional category-specific connectedness. Originality/value This study expands existing literature in several ways. Firstly, the authors use a novel conditional connectedness approach, which has not been used to untangle cross-category/cross-country policy uncertainty connectedness. Secondly, they use the TVP-VAR approach which does not depend on rolling windows to understand dynamic connectedness. Thirdly, they use an expanded number of countries in their analysis, a departure from existing studies that have in most cases used two countries to understand categorical EPU connectedness.

Analysis of output and output volatility connectedness of Nigeria, USA, China and India: new empirical insights from the global financial crisis versus 2016 Nigerian recession

“…This, however, placed the USA as the fifth largest import market for Nigeria, contributing about 7.3% of Nigeria’s total import in 2018. These trade statistics further demonstrate the degree of trade integration or synchronization among these economies, which demonstrates the rate at which globalization is breeding across the globe, thereby leaving economies more interlinked, including their policies (Nyakurukwa and Seetharam, 2023). Vivid description of the trade traffic among these economies is shown graphically thus in Figure 1(a)–(c).…”

“…The output elasticity analyses reveal that Eurozone recession impacts the Indian economy negatively. Using a time-varying parameter VAR, Nyakurukwa and Seetharam (2023) examined cross-border policy uncertainty shock spillovers among four advanced economies (the USA, Japan, Greece and South Korea) between 2008 and 2021. The examined three main policy uncertainties include monetary policy uncertainty (MPU), economic policy uncertainty (EPU) and fiscal policy uncertainty (FPU).…”

Investigation into the dynamic relationships between global economic uncertainty and price volatilities of commodities, raw materials, and energy

“…In recent decades, the concept of globalization and increasing interactions between countries have made the occurrence of uncertainty in one country, or one region of the world spread to other areas and even the entire globe (Civcir and Varoglu, 2019; Nyakurukwa and Seetharam, 2023). For instance, the advent of the coronavirus in late 2019 in China increased uncertainty in other Asian nations, which then spread to Europe and the USA (Sharma et al , 2020).…”