Policy Uncertainty Spillovers to Emerging Markets Evidence from Capital Flows

Gauvin, Ludovic; McLoughlin, Cameron; Reinhardt, Dennis

doi:10.2139/ssrn.2502029

Cited by 35 publications

(24 citation statements)

References 66 publications

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“…It turns out that uncertainty about the state of the economy can be captured by the volume of Google searches for policy-related topics. Gauvin et al, 2013). Of course, our findings confirm that the VIX and all the other policy-related uncertainty measures exhibit nearly identical patterns (see Colombo, 2013;Nodari, 2014).…”

Section: Discussionsupporting

confidence: 76%

Google search-based metrics, policy-related uncertainty and macroeconomic conditions

Donadelli

2014

Applied Economics Letters

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We propose three novel measures of policy-related uncertainty based on the volume of Google searches for (i) 'US stock market'; (ii) 'US politics'; (iii) 'US Fed'. In a VAR context, we find that a Google-search-based uncertainty shock has sizable adverse effects on US macroeconomic conditions. In particular, it produces (i) a drop in industrial production, consumer sentiment, equity prices, long-term rates and consumer credit; (ii) a rise in the unemployment rate. These effects are nearly identical to those generated by a shock to a standard policy-related uncertainty indicator. Our empirical findings suggest that a rise in the volume of internet searches for economic policy-related topics is a symptom of increasing uncertainty. It turns out that the proposed Google-search-based metrics meet standard policy-related uncertainty indicators.

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Section: Discussionsupporting

confidence: 76%

Google search-based metrics, policy-related uncertainty and macroeconomic conditions

Donadelli

2014

Applied Economics Letters

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“…Gauvin, McLoughlin, and Reinhardt (2014) provided evidence of general policy uncertainty in mature economies as a determinant of international capital flows to emerging economies. They used the policy uncertainty indicators of Baker, Bloom, and Davis (2013), but not a focused measure of specific monetary policy uncertainty such as the one used in this paper.…”

Section: Policy Implicationsmentioning

confidence: 99%

Uncertainty About Federal Reserve Policy and Its Transmission to Emerging Economies: Evidence from Twitter

Tillman

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Working papers are subject to formal revision and correction before they are finalized and considered published.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, JapanTel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.org E-mail: info@adbi.org AbstractIt is well known that a tightening or easing of the United States' monetary policy affects financial markets in emerging economies. This paper argues that uncertainty about future monetary policy is a separate transmission channel. We focus on the taper tantrum episode in 2013, a period with an elevated uncertainty about monetary policy, and use a data set that contains 90,000 Twitter messages ("tweets") on Federal Reserve tapering. Based on this data set, we construct a new index about monetary policy uncertainty using a list of uncertainty keywords. An advantage of this index is that it reflects uncertainty about a specific policy decision. An estimated vector autoregression (VAR) shows that uncertainty shocks lead to a fall in asset prices and a depreciation of local currencies. We also discuss the policy implications of this uncertainty channel of monetary policy transmission.

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“…For example, using a large panel of emerging countries, Gourio et al (2015) find that an increase in domestic uncertainty, measured by the realized stock market volatility in each emerging economy, decreases capital inflows (stops) and capital outflows (retrenchment). 14 Gauvin et al (2014) study how uncertainty about macroeconomic policies in advanced countries spills over to emerging market economies by analyzing bond and equity inflows to emerging market economies. These studies rely on either balance of payment data (Gourio et al, 2015) or the Emerging Portfolio Fund Research (EPFR) data aggregated at the recipient country level (Gauvin et al, 2014), which do not provide information on a source of capital inflows to emerging market economies.…”

Section: Link To the Previous Studiesmentioning

confidence: 99%

“…14 Gauvin et al (2014) study how uncertainty about macroeconomic policies in advanced countries spills over to emerging market economies by analyzing bond and equity inflows to emerging market economies. These studies rely on either balance of payment data (Gourio et al, 2015) or the Emerging Portfolio Fund Research (EPFR) data aggregated at the recipient country level (Gauvin et al, 2014), which do not provide information on a source of capital inflows to emerging market economies. Thus, their estimation still suffers from the reverse causality or omitted variable bias.…”

Section: Link To the Previous Studiesmentioning

confidence: 99%

“…Despite the fact that literature has increasingly focused on the effect of uncertainty on macroeconomic outcomes, an analysis of uncertainty shocks in the international context have received less attention (Carrière-Swallow and Céspedes, 2013;Gourio et al, 2013;Fogli and Perri, 2015;Bernal, 2016;Choi, 2017;Choi, forthcoming). In particular, while the VIX-a measure of global uncertainty or global risk aversion-has proved to be an important push factor of international capital flows (Milesi-Ferretti and Tille, 2011;Forbes et al, 2012;Fratzscher, 2012;Ahmed and Zlate, 2014;Bruno and Shin, 2014;Passari and Rey, 2015;Rey, 2015), only few studies have examined cross-country hetereogeneity in uncertainty to explain international capital flows (Gauvin et al, 2014;Gourio et al, 2015;Julio and Yook, 2016). This paper contributes to this literature by providing a first analysis-to the best of our knowledge-of the effects of uncertainty shocks on cross-border banking flows.…”

Section: Introductionmentioning

confidence: 96%

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