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US financial stress, regional spillovers, and global economic policy uncertainty

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  • Rao, Amar
  • Bindabel, Wardah
  • Dagar, Vishal
  • Guesmi, Khaled

Abstract

We study how financial stress originating in the United States (US), Advanced Economies (ADV), and Emerging Markets (EM) relates to movements in Economic Policy Uncertainty (EPU). Using monthly data for 2000–2024, we estimate horizon-specific responses to ΔEPU to one-standard-deviation innovations in ΔFinancial Stress Index (FSI) via Jordà (2005) local projections with four lags and standard controls ΔBloomberg Commodity Index (BCOM), ΔFederal Funds Rate (FEDFUNDS), ΔU.S. Dollar Index (DollarIdx), ΔCBOE Volatility Index (VIX). Across regions, the impact coefficient is negative,indicating that stress shocks are associated with an immediate reduction in the month-over-month change of EPU. Beyond impact, responses are small in magnitude, yielding limited persistence; cumulative effects over six months are modest and typically encompassed by wide confidence bands. Taken together, the evidence suggests that policy-uncertainty index adjusts quickly to stress realizations, with little systematic propagation at monthly horizons. This transience is most consistent with information/communication channels whereby policy guidance and rapid market repricing compress subsequent uncertainty innovations, while allowing for regional heterogeneity.

Suggested Citation

  • Rao, Amar & Bindabel, Wardah & Dagar, Vishal & Guesmi, Khaled, 2026. "US financial stress, regional spillovers, and global economic policy uncertainty," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s1544612325024171
    DOI: 10.1016/j.frl.2025.109168
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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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