The effects of economic policy uncertainty on European economies: evidence from a TVP-FAVAR
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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.
KeywordsTVP-FAVAR Economic policy uncertainty Fat data Hyperparameter European Monetary Union Hierarchical prior
JEL ClassificationC11 C32 E20 E60
Compliance with ethical standards
Conflict of interest
Jan Prüser and Alexander Schlösser declare that they have no conflict of interest.
Human participants or animals performed
This article does not contain any studies with human participants or animals performed by any of the authors.
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