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The effects of economic policy uncertainty on European economies: evidence from a TVP-FAVAR

Author

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  • Jan Prüser

    (University of Duisburg-Essen
    RWI - Leibniz Institute for Economic Research)

  • Alexander Schlösser

    (University of Duisburg-Essen)

Abstract

We use a time-varying parameter FAVAR model to investigate the effects of economic policy uncertainty (EPU) on a wide range of macroeconomic variables for eleven European Monetary Union (EMU) countries. First, we are able to distinguish between a group of fragile countries (GIIPS countries) and a group of stable countries (northern countries), where the former suffered the most due to EPU shocks. Second, we find that EPU shocks affect financial markets as well as the real economy and that private investors and financial market participants react more sensitively than consumers to EPU shocks. Third, we discover that the transmission of EPU shocks is quite stable over time.

Suggested Citation

  • Jan Prüser & Alexander Schlösser, 2020. "The effects of economic policy uncertainty on European economies: evidence from a TVP-FAVAR," Empirical Economics, Springer, vol. 58(6), pages 2889-2910, June.
    • Handle: RePEc:spr:empeco:v:58:y:2020:i:6:d:10.1007_s00181-018-01619-8
    DOI: 10.1007/s00181-018-01619-8
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    More about this item

    Keywords

    TVP-FAVAR; Economic policy uncertainty; Fat data; Hyperparameter; European Monetary Union; Hierarchical prior;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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