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Cross-Category, Trans-Pacific Spillovers of Policy Uncertainty and Financial Market Volatility

  • Christopher ThiemEmail author
Research Article
  • 28 Downloads

Abstract

Using generalised variance decompositions from vector autoregressions, we analyse cross-country, cross-category spillovers of economic policy uncertainty (EPU) and financial market volatility between the US and Japan. Our model includes indices of monetary, fiscal and trade policy uncertainty for each country, as well as three measures of option-implied stock market and exchange rate volatility, respectively. We find that the financial market volatility indices are usually substantial net spillover transmitters towards the total group of EPU measures. However, the Japanese equity and especially the FX volatility index are typically more affected by EPU spillovers than the US VXO. Our results also reveal that, compared to within-country spillovers, cross-country spillovers of EPU are relatively small and less volatile. Finally, we show that the direction of net EPU spillovers between the US and Japan is both time- and category-dependent with different EPU categories acting as strong sources of uncertainty spillovers throughout the sample period.

Keywords

Economic policy uncertainty Exchange rate volatility Japan Spillovers Stock market volatility United States Vector autoregression 

JEL Classification

C32 D80 F42 G18 

Notes

References

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Chair of International EconomicsUniversity of Duisburg-EssenEssenGermany

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