Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/187456 
Year of Publication: 
2017
Series/Report no.: 
ROME Discussion Paper Series No. 17-11
Publisher: 
Research On Money in the Economy (ROME), s.l.
Abstract: 
In light of the rising political and economic uncertainty in Europe, we aim to provide a basic understanding of the impact of economic policy uncertainty and financial market uncertainty on a set of macroeconomic variables such as production, consumption and investment. In this paper, we apply a structural vector autoregressive (SVAR) model to gain first insights that may help to identify avenues for further research based on non-linear processes. We find that stock market uncertainty shows a fairly consistently negative effect on the real economy in Europe. However, the implications of economic policy uncertainty for Europe and the Euro area in particular are not so straightforward. It seems as if policy uncertainty raises general investment and consumption of long-lived goods in the EMU core countries in order to be prepared to react on different states of the world in the future. What is more, shifts of invest-ment from peripheral to core EMU member countries as safe havens in uncertain times may produce the same empirical pattern.
Subjects: 
hysteresis
investment-type decisions
macroeconomic performance under uncertainty
economic policy uncertainty
financial uncertainty
option value of waiting
SVAR
JEL: 
C32
E20
E60
Document Type: 
Working Paper

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