Spillovers of the US real and financial uncertainty on the Euro area

Bakkar, Yassine; Nilavongse, Rachatar; Saha, Anup Kumar

doi:10.1080/13504851.2020.1808166

Cited by 7 publications

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“…The paper contributes in a number of ways to the growing literature on how uncertainty or sentiment shocks affect macroeconomic performance. First, spillovers of economic uncertainty shocks have often been analysed using models that describe the dynamics of an individual economy (Stockhammar and Österholm 2016 ; Cheng 2017 ; Bakkar et al 2021 ), while our study considers four open economies, so the results can be compared across the countries. Second, we use a relatively large VAR model that provides a detailed description of the local and US economies relative to the smaller VAR models typically used in other studies (Stockhammar and Österholm 2016 , 2017 ).…”

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confidence: 99%

Foreign and Domestic Uncertainty Shocks in Four Open Economies

et al. 2021

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This paper investigates how the economic performance of four economies with floating exchange rates is affected by shocks in domestic and US economic policy uncertainty. We estimate a Bayesian VAR model describing the dynamics of ten local and US variables for each of the four countries and use it to evaluate the response of the system to structural shocks. The analysis reveals that increased economic uncertainty in the US reduces industrial output in all the countries analysed, while the effect of increased domestic uncertainty varies across the economies. A key finding concerns the role of the exchange rate. Whereas the real effective exchange rate amplifies the effect of uncertainty shocks in the US, it typically helps absorb shocks in the open economies. This asymmetry may reflect the role of the US as a safe haven in times of increased uncertainty. Supplementary Information The online version contains supplementary material available at 10.1007/s11079-021-09656-0.

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