The effects of economic policy uncertainty on European economies: evidence from a TVP-FAVAR

Prüser, Jan; Schlösser, Alexander

doi:10.1007/s00181-018-01619-8

Cited by 26 publications

(16 citation statements)

References 51 publications

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“…Comparing the size of the initial impact on investment (GI: −1%; GM: −0.4%; GR: −0.9%) with the size of the initial impact on consumption (GI: −0.15%; GM: −0.1%; GR: −0.05%), shows that consumption is less sensitive to an EPU shock than investment. This finding is in line with Prüser and Schlösser () who found a similar result for European economies and indicates that the real options is, in an absolute sense, more important than the precautionary savings channel. In the case of unemployment, shown in Figure A.5c, the initial impact varies slightly around an increase of 0.05% points.…”

Section: Resultssupporting

confidence: 90%

On the Time‐Varying Effects of Economic Policy Uncertainty on the US Economy

Prüser

Schlösser

2020

Oxf Bull Econ Stat

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We study the impact of Economic Policy Uncertainty (EPU) on the US Economy by using a VAR with time‐varying coefficients. The coefficients are allowed to evolve gradually over time which allows us to discover structural changes without imposing them a priori. We find three different regimes, which match the three major periods of the US economy, namely the Great Inflation, the Great Moderation and the Great Recession. The initial impact on real GDP ranges between −0.2% for the Great Inflation and Great Recession and −0.15% for the Great Moderation. In addition, the adverse effects of EPU are more persistent during the Great Recession providing an explanation for the slow recovery. This regime dependence is unique for EPU as the macroeconomic consequences of Financial Uncertainty turn out to be rather time invariant.

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Section: Resultssupporting

confidence: 90%

On the Time‐Varying Effects of Economic Policy Uncertainty on the US Economy

Prüser

Schlösser

2020

Oxf Bull Econ Stat

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“…Financial stress, economic policy uncertainty and geopolitical risk are likely to have detrimental effects on real economic activity. Previous studies on individual European countries and the euro area as a whole provide such evidence, for example, van Roye (2014), Kremer (2016), Aboura and van Roye (2017), Prüsser and Schlösser (2017), ECB (2017). In this light, the relationship between these variables and year‐on‐year growth rates of industrial production indices for the sample countries is considered.…”

Section: Data and Empirical Strategymentioning

confidence: 78%

Macrofinancial linkages in Europe: Evidence from quantile local projections

Stolbov

Shchepeleva

2020

Int. J Fin Econ

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The paper investigates macrofinancial linkages in the sample of 16 European economies over January 1997–December 2019 from a new twofold perspective. First, we put a particular emphasis on the role of news‐based sentiment measures in these relationships, that is, economic policy uncertainty and global geopolitical risk. Second, we pursue a hybrid econometric approach to capture a presumably nonlinear nature of these linkages by building on different quantiles of the data series and estimating impulse responses from smooth local projections (Barnichon and Brownlees, Review of Economics and Statistics, 101(3), 522–530, 2019). Our results legitimize such approach as the number of statistically significant impulse responses based on this approach is skewed towards upper (75th and 90th) quantiles. We find that global economic policy uncertainty index dampens the growth rates of industrial production in Austria, France, Italy, Luxembourg and Slovakia, which calls for specific measures to mitigate this adverse effect at the national level, for example, by curtailing yellow journalism, populist ideas and disbeliefs. However, there is only minor evidence for the relationship running between economic policy uncertainty and financial stress. Global geopolitical risk appears irrelevant in the country‐ and panel‐level analyses. Meanwhile, the VIX index performs a pervasive role in undermining industrial production and increasing economic policy uncertainty in Europe.

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“…Third, to counter the negative effect of policy uncertainty, governments could adopt a protectionist policy that may further increase risk in financial markets [29]. Lastly, due to policy uncertainty, a decrease in future cash flows or an increase in the risk-adjusted discount rate or both may affect stock prices [55].…”

Section: Literature Reviewmentioning

confidence: 99%

Sustainability of Global Economic Policy and Stock Market Returns in Indonesia

2021

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Interdependence in trade and financial globalization has increased the vulnerability of developed and developing countries to external shocks alike, whereas emerging markets are more vulnerable to the shocks originating from the world’s leading economies. This paper investigates the impact of the uncertainty from the global economic policy on the return of the Indonesian stock market by using the time-varying correlation based on the rolling window method and time-varying built dynamic conditional correlation method. Both the rolling window and condition correlation estimates indicate that the correlation between global policy uncertainty and Indonesian stock returns is time-varying. The results of the autoregressive distributed lag-based regression indicate that inflation, global crude oil prices, gross domestic product, and world crude oil production have significant impacts on the dynamic conditional correlation. The average negative estimate of time-varying correlation suggests that investors when faced with liquidity constraints in one country may sell off their assets in another country to raise funds in order to meet their future financial needs. This also indicates that the rise in the uncertainty of economic policy in developed markets has a negative impact on the shocks faced by the Indonesian stock market. Based on our empirical findings, it is recommended that Indonesian policymakers should place more focus on the sustainability of the economic growth, pay close attention to volatile crude oil prices, world crude oil production, and inflation so as to avoid dynamic interaction between the uncertainty of economic policy in the developed markets and the return of the Indonesian stock market.

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The effects of economic policy uncertainty on European economies: evidence from a TVP-FAVAR

Cited by 26 publications

References 51 publications

On the Time‐Varying Effects of Economic Policy Uncertainty on the US Economy

On the Time‐Varying Effects of Economic Policy Uncertainty on the US Economy

Macrofinancial linkages in Europe: Evidence from quantile local projections

Sustainability of Global Economic Policy and Stock Market Returns in Indonesia

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