Spillover Network among Economic Sentiment and Economic Policy Uncertainty in Europe

Abstract

We explore the directional spillover network among economic sentiment indicators and the economic policy uncertainty (EPU) index from Europe. We derive our results by fitting the directional spillover index approach to the monthly frequency data of eleven European countries, economic sentiment indicators and the European EPU index, spanning from 1 January 1987, to 1 February 2019. The empirical results indicate that the economic sentiment indicators of the largest European economies (Germany, France, and Italy) spillover with each other the most. The economic sentiment indicators of Germany and France most strongly influence the EU and Euro area economic sentiment indicators. The economic sentiment indicators of France and Italy have the most influence on the European EPU index, while the latter has the strongest influence on the economic sentiment indicators of Germany and France.

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