A note on international spillovers of economic policy uncertainty across business cycles: evidence from OECD countries

Abstract

We estimate a smooth-transition vector autoregression model (ST-VAR) using panel data from 14 OECD countries to study the cross-country spillover effects of economic policy uncertainty (EPU) shocks. An unexpected elevation of EPU originating abroad has an overall contractionary real effect, and the spillover effects depend on the state of the business cycle of the recipient country. EPU spillover shocks during recessions have stronger but less persistent effects on a number of economic indicators. We also find that the interconnectedness of EPU, financial markets, and business confidence are important channels for the EPU shocks to propagate across countries, while the trade channel has limited effects, especially during expansions.