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- Title
Financial vs. Policy Uncertainty in Emerging Market Economies.
- Authors
Choi, Sangyup; Shim, Myungkyu
- Abstract
While the negative effect of uncertainty shocks on economic activity is well documented in many empirical studies, little is known about the extent to which the effect differs across various kinds of uncertainty, especially in the emerging market economy context. Using the newly available economic policy uncertainty index from six emerging market economies (Brazil, Chile, China, India, Korea, and Russia), we compare the impact of financial uncertainty shocks—measured by stock market volatility—and that of policy uncertainty shocks on the economy. We find that financial uncertainty shocks have much larger and more significant impact on output than policy uncertainty shocks, except for China where the government has direct controls over financial market activity. While our finding differs from the existing studies about advanced economies that find no smaller effects of policy uncertainty shocks on output than financial uncertainty shocks, it is consistent with the recent emphasis on financial frictions as a propagation mechanism of uncertainty shocks.
- Subjects
EMERGING markets; ECONOMIC activity; CAPITALISM; VECTOR autoregression model; FINANCIAL market reaction
- Publication
Open Economies Review, 2019, Vol 30, Issue 2, p297
- ISSN
0923-7992
- Publication type
Article
- DOI
10.1007/s11079-018-9509-9