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A Comparative Assessment of the Global Effects of US Monetary and Fiscal Policy Uncertainty Shocks

Author

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  • Raymond L. Aor

    (Department of Economics, Benue State University, Makurdi, Nigeria)

  • Afees A. Salisu

    (Centre for Econometrics and Applied Research, Ibadan, Nigeria)

  • Isah J. Okpe

    (Department of Economics, Benue State University, Makurdi, Nigeria)

Abstract

We employ the Global Vector Autoregressive (GVAR) model to trace the propagation effects of both U.S. monetary and fiscal policy uncertainty shocks on real equity prices and real gross domestic product of 32 advanced and emerging countries (besides the U.S.). Using quarterly data over 1985Q1 to 2019Q4, our findings reveal a higher response of advanced markets than emerging counterparts to a unit shock to both U.S. fiscal and monetary policy uncertainties. However, regardless of the market classification, we show that real equity prices respond more to monetary policy uncertainty shock than real gross domestic product while the reverse holds for fiscal policy uncertainty shock. Our results offer important implications for investment and policy decisions.

Suggested Citation

  • Raymond L. Aor & Afees A. Salisu & Isah J. Okpe, 2021. "A Comparative Assessment of the Global Effects of US Monetary and Fiscal Policy Uncertainty Shocks," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(4), pages 89-114, December.
    • Handle: RePEc:aag:wpaper:v:25:y:2021:i:4:p:89-114
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    References listed on IDEAS

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    Cited by:

    1. Salisu, Afees A. & Bouri, Elie & Gupta, Rangan, 2022. "Out-of-sample predictability of gold market volatility: The role of US Nonfarm Payroll," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 482-488.

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    More about this item

    Keywords

    Fiscal Policy Uncertainty; Monetary Policy Uncertainty; Real equity prices; Real Gross Domestic Product; GVAR Model; US;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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