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Chinese policy uncertainty shocks and the world macroeconomy: Evidence from STVAR

Author

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  • Fontaine, Idriss
  • Razafindravaosolonirina, Justinien
  • Didier, Laurent
Abstract
How far could a rise in uncertainty affecting China be transmitted to other economies? This paper investigates the possible spillovers from a shock to Chinese Economic Policy Uncertainty (EPU) to developed (the United States, the Euro Area, Japan and South Korea) and emerging economies (Brazil and Russia). To take into account the non-linear nature of uncertainty shocks, we estimate a Smooth-Transition Vector Auto-Regressive (STVAR) model differentiating phases of expansion and phases of recession. We find important asymmetries in the responses to Chinese uncertainty shocks of macro-variables especially for the United States (US), the Euro Area (EA) and South Korea. Indeed, these countries display almost no response to the identified shock during booms. However, when hit in downturns, they suffer from a fall in industrial production, inflation and exports together with an increase in unemployment (except for Korea). Emerging countries (Brazil and Russia) stand out in the extent to which they significantly respond to the Chinese shock in both identified regimes. Lastly, the Japanese economy seems to be less sensitive to the Chinese shock.

Suggested Citation

  • Fontaine, Idriss & Razafindravaosolonirina, Justinien & Didier, Laurent, 2018. "Chinese policy uncertainty shocks and the world macroeconomy: Evidence from STVAR," China Economic Review, Elsevier, vol. 51(C), pages 1-19.
    • Handle: RePEc:eee:chieco:v:51:y:2018:i:c:p:1-19
    DOI: 10.1016/j.chieco.2018.04.008
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    More about this item

    Keywords

    Economic policy uncertainty; China; STVAR; Spillover effects;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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