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    Economic Policy Uncertainty Spillovers in Booms and Busts

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    Author
    Caggiano, G; Castelnuovo, E; Figueres, JM
    Date
    2020-02-02
    Source Title
    Oxford Bulletin of Economics and Statistics
    Publisher
    Wiley
    University of Melbourne Author/s
    Castelnuovo, Efrem; CAGGIANO, GIOVANNI
    Affiliation
    Economics
    Melbourne Institute of Applied Economic and Social Research
    Metadata
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    Document Type
    Journal Article
    Citations
    Caggiano, G., Castelnuovo, E. & Figueres, J. M. (2020). Economic Policy Uncertainty Spillovers in Booms and Busts. Oxford Bulletin of Economics and Statistics, 82 (1), pp.125-155. https://doi.org/10.1111/obes.12323.
    Access Status
    This item is embargoed and will be available on 2022-02-01. Access full text via the Open Access location
    URI
    http://hdl.handle.net/11343/253829
    DOI
    10.1111/obes.12323
    Open Access URL
    https://rss.onlinelibrary.wiley.com/doi/am-pdf/10.1111/obes.12323
    ARC Grant code
    ARC/DP160102281
    Abstract
    We estimate a nonlinear VAR to quantify the impact of US economic policy uncertainty shocks on the Canadian unemployment rate in booms and busts. We find strong evidence in favour of asymmetric spillover effects. Unemployment in Canada is shown to react more strongly to uncertainty shocks in economic busts. Such shocks explain about 13% of the variance of the 2‐year ahead forecast error of the Canadian unemployment rate in recessions vs. just 2% during economic booms. Counterfactual simulations point to a novel ‘economic policy uncertainty spillovers channel’. According to this channel, jumps in US uncertainty foster economic policy uncertainty in Canada in the first place and, because of the latter, lead to a temporary increase in the Canadian unemployment rate. Evidence of asymmetric spillover effects are also found for the UK economy, whose trade intensity with the US is low. This result is consistent with a transmission channel other than trade behind our findings.

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