Does economic uncertainty spill across countries?
|Author:||Mgr. Norbert Skákala|
|Year:||2020 - summer|
|Leaders:|| doc. PhDr. Jozef Baruník Ph.D.
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:||Deloitte Outstanding Thesis Award.|
|Abstract:||We study economic policy uncertainty spillovers on a panel of ten countries
between April 1998 to September 2019. The analysis is performed on the
Economic Policy Uncertainty indices data. To measure the spillovers, we
utilize forecast error variance decompositions of VAR model. We found that
approximately half of the forecast variance can be explained by spillovers shocks
across countries. Further, we disentangle the spillover measure to short-, midand long-term cycles using frequency domain. Our results suggest that most
of the spillovers are caused by shocks into low frequencies, hence with long
persistence. Employing quantile regression on equation-by-equation basis to
estimate the VAR model, we find that idiosyncratic uncertainty shocks do not
propagate strongly at the median but that powerful spillovers occur in the right
tail of distribution. Additionally, we perform rolling window estimates of the
spillovers. The results indicate strong variation in time, especially during major
geopolitical events, such as Iraq War (2003), Global Financial Crisis (2007-09),
European debt crisis (2010-12) or Brexit (2016).