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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...

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Autores principales: Nilavongse, Rachatar, Rubaszek, Michał, Staehr, Karsten, Uddin, Gazi Salah
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Springer US 2021
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8687878/
http://dx.doi.org/10.1007/s11079-021-09656-0
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author Nilavongse, Rachatar
Rubaszek, Michał
Staehr, Karsten
Uddin, Gazi Salah
author_facet Nilavongse, Rachatar
Rubaszek, Michał
Staehr, Karsten
Uddin, Gazi Salah
author_sort Nilavongse, Rachatar
collection PubMed
description 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. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s11079-021-09656-0.
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spelling pubmed-86878782021-12-21 Foreign and Domestic Uncertainty Shocks in Four Open Economies Nilavongse, Rachatar Rubaszek, Michał Staehr, Karsten Uddin, Gazi Salah Open Econ Rev Research Article 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. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s11079-021-09656-0. Springer US 2021-12-21 2021 /pmc/articles/PMC8687878/ http://dx.doi.org/10.1007/s11079-021-09656-0 Text en © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021 This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic.
spellingShingle Research Article
Nilavongse, Rachatar
Rubaszek, Michał
Staehr, Karsten
Uddin, Gazi Salah
Foreign and Domestic Uncertainty Shocks in Four Open Economies
title Foreign and Domestic Uncertainty Shocks in Four Open Economies
title_full Foreign and Domestic Uncertainty Shocks in Four Open Economies
title_fullStr Foreign and Domestic Uncertainty Shocks in Four Open Economies
title_full_unstemmed Foreign and Domestic Uncertainty Shocks in Four Open Economies
title_short Foreign and Domestic Uncertainty Shocks in Four Open Economies
title_sort foreign and domestic uncertainty shocks in four open economies
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8687878/
http://dx.doi.org/10.1007/s11079-021-09656-0
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