Global Dimensions of Economic Uncertainty: Evidence via Global VECM

Abstract

We develop and estimate a global augmented vector error correction model (GVECM) to examine the interconnected relationships between various economic factors, including global output, consumer price index (CPI), interest rates, oil price, equity price, and global economic policy uncertainty (GEPU). Unlike previous research, which predominantly focuses on the impact of domestic EPU on domestic conditions, our approach is cast in a global setting to understand the transmission of global shocks. The analysis reveals that both oil and equity prices play significant roles as channels for GEPU, jointly contributing to approximately 42\% of the overall variance. Our findings shed light on the complex interplay between these key economic variables and their impact on global economic conditions, providing valuable insights for policymakers and investors. JEL Classification: C32, F44, E44.