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Spillover effects of the US economic policy uncertainty in Latin America

Author

Listed:
  • Semei Coronado
  • Jose N. Martinez
  • Francisco Venegas-Martinez

Abstract

This paper is aimed at assessing the spillover effects of the US Economic Policy Uncertainty (EPU) in macroeconomic variables of major Latin American Countries (LAC): Mexico, Colombia, Brazil, and Chile. To do that, we estimate a set of two-country Structural Vector Autoregressive (SVAR) models for 1997-2019; each model includes the US and one of the LAC. We use the following variables: EPU indexes, exchange rates, consumer price indexes, industrial production (IP), and interest rates (IR) of the US and the studied LAC. The main finding is that positive shocks in the US EPU index lead to currency depreciation for all four LAC; the largest effect is for Mexico. Other statistically significant results are a brief and small positive impact on Colombia's IP and a positive impact on Mexico's IR. The remaining LAC's estimates are statistically insignificant. For this reason, we applied Rossi and Wang's (2019) robust Granger causality tests that considers structural breaks. Finally, the estimates before and after the 2008 financial crisis suggest that LAC became slightly more responsive to US EPU shocks after the crisis.

Suggested Citation

  • Semei Coronado & Jose N. Martinez & Francisco Venegas-Martinez, 2020. "Spillover effects of the US economic policy uncertainty in Latin America," Estudios de Economia, University of Chile, Department of Economics, vol. 47(2 Year 20), pages 273-293, December.
    • Handle: RePEc:udc:esteco:v:47:y:2020:i:2:p:273-293
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    File URL: https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/59173/62648
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    Citations

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    Cited by:

    1. Ramírez-Orihuela, Mitzi Vania & Venegas-Martínez, Francisco, 2024. "Impacto del covid-19 en la actividad económica y en la incertidumbre de política económica: un enfoque de datos panel para una muestra de países de América Latina [Impact of covid-19 on economic ac," MPRA Paper 119668, University Library of Munich, Germany.
    2. Erik Munoz Henríquez & Francisco Gálvez-Gamboa, 2022. "Efecto de la incertidumbre de la política económica internacional sobre los mercados financieros latinoamericanos," Estudios Gerenciales, Universidad Icesi, vol. 38(165), pages 519-528, November.

    More about this item

    Keywords

    Economic policy uncertainty; structural vector autoregressive; impulse response function; robust Granger-causality tests.;
    All these keywords.

    JEL classification:

    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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