Foreign and Domestic Uncertainty Shocks in Four Open Economies

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 t...

Full description

Saved in:
Bibliographic Details
Published in:Open economies review 2021-11, Vol.32 (5), p.933-954
Main Authors: Nilavongse, Rachatar, Rubaszek, Michał, Staehr, Karsten, Uddin, Gazi Salah
Format: Article
Language:English
Subjects:
American dollar
Bayesian analysis
COVID-19
Development Economics
Economic activity
Economic performance
Economic Policy
Economics
Economics and Finance
European Integration
Floating exchange rates
Foreign exchange rates
Industrial production
International Economics
Investigations
Macroeconomics
Macroeconomics/Monetary Economics//Financial Economics
Pandemics
Research Article
Uncertainty
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary: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.
ISSN:0923-7992
1573-708X
1573-708X
DOI:10.1007/s11079-021-09656-0