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Economic Policy Uncertainty in Europe: Spillovers and Common Shocks

Author

Listed:
  • Jaromir Baxa

    (Institute of Economic Studies of the Faculty of Social Sciences, Charles University; Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic)

  • Tomas Sestorad

    (aInstitute of Economic Studies of the Faculty of Social Sciences, Charles University; Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic & The Czech National Bank, Prague, Czech Republic)

Abstract
This paper proposes a novel approach to decompose the Economic Policy Uncertainty indices of European countries into the common and country-specific components using the time-varying total connectedness. Then, by employing a Bayesian panel VAR model, we assess how common and country-specific uncertainty shocks influence economic activity, prices, and monetary policy, with the shocks identified using zero and sign restrictions. Our results reveal that only common shocks have significant effects on all macroeconomic variables. This result is robust across alternative samples and structural identifications. Therefore, our findings imply that policymakers should focus on uncertainty shocks that are synchronized across countries.

Suggested Citation

  • Jaromir Baxa & Tomas Sestorad, 2024. "Economic Policy Uncertainty in Europe: Spillovers and Common Shocks," Working Papers IES 2024/34, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2024.
  • Handle: RePEc:fau:wpaper:wp2024_34
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    References listed on IDEAS

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    More about this item

    Keywords

    Common uncertainty; economic policy uncertainty; panel VAR; spillovers;
    All these keywords.

    JEL classification:

    • 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
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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