Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155775
Authors: 
Belke, Ansgar
Osowski, Thomas
Year of Publication: 
2017
Series/Report no.: 
GLO Discussion Paper 35
Abstract: 
Building on the growing evidence on the importance of large data sets for empirical macroeconomic modeling, we estimate a large-scale FAVAR model for 18 OECD member countries. We quantify the global effects of economic policy uncertainty shocks and check whether the signs, the magnitude, and the persistence profile are consistent with the literature on the real and financial sector effects of uncertainty. In that respect, we compare the impacts of a US and a Euro area uncertainty shock. According to our results, an increase in uncertainty has a strong negative impact on economic activity, consumer prices, equity prices and interest rates. Uncertainty shocks cause deeper recessions in Continental Europe (except Germany) than in Anglo- Saxon countries. This pattern is compatible with the view that continental Europe still suffers from institutions which prevent flexible markets. And US uncertainty shocks have a bigger impact than their European counterparts. Uncertainty does not only impact that country where the shock originates but also has large cross-border effects. In that respect, Switzerland turns out to be the most affected non-Euro area European country. We also find a high degree of synchronization among the responses of national variables to a (foreign) uncertainty shock, indicating evidence of an international business cycle. With respect to the responses of national long-term interest rates to an uncertainty shock, our results reveal a strong “North-South” divide within EMU with rates decreasing less significantly in the South. Another important result is that uncertainty shocks emerging in one region quickly raise uncertainty outside the region of origin which appears to be an important transmission channel of uncertainty.
Subjects: 
Economic policy uncertainty
Europe
FAVAR analysis
large-scale econometric models
option value of waiting
uncertainty effects
international uncertainty spillovers
United States
JEL: 
C32
F42
D80
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.