The contagious effect of economic policy uncertainty in the post-crisis period

Abstract

Purpose: This study aims to analyze the contagious effects of economic policy uncertainties in the USA on the economies of its important trading partners, such as Japan, Canada, Mexico and the Eurozone. Design/methodology/approach: In the study using the uncertainty index created by Baker et al. (2016), the interaction between variables was analyzed with structural VAR (SVAR) models. Findings: According to the results obtained from the analysis, economic policy uncertainties in the USA had significant effects on the economies of its high-volume trading partners. The internal debt crisis experienced in the Eurozone after the 2008 crisis caused the European Central Bank to respond to the economic policy uncertainties in the USA with contractionary monetary policies, unlike other countries. In addition to these results, Mexico, which has a more fragile economic structure than other countries in the analysis, was more impacted by increasing uncertainties, as expected. Originality/value: The present study aimed to bring a new perspective to the literature by evaluating the contagiousness of local uncertainty in the globalizing world and the monetary policies implemented as a precaution against this situation on an empirical plane.