IDEAS home Printed from https://ideas.repec.org/p/pre/wpaper/201857.html
   My bibliography  Save this paper

The Impact of US Uncertainty Shocks on a Panel of Advanced and Emerging Market Economies: The Role of Exchange Rate, Trade and Financial Channels

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Godwin Olasehinde-Williams

    (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus, Turkey)

  • Mark E. Wohar

    (College of Business Administration, University of Nebraska at Omaha, Omaha, USA, and School of Business and Economics, Loughborough University, Leicestershire, UK.)

Abstract

In this paper, we analyze the spillovers of uncertainty from the United States (US) on Gross Domestic Product (GDP) in a large panel of 50 advanced and emerging economies. We allow the response of GDP in each country to vary according to its exchange rate regime, trade openness, and a vulnerability index (based on current account, foreign reserves, inflation, and external debt). We observe large heterogeneity in the response of advanced and emerging economies to uncertainty surprises of the US. In response to an increase in US uncertainty, GDP in foreign economies drops about as much as it does in the US. In addition we find that, for advanced economies trade intensity with the US and the exchange rate regime account for a large portion of the contraction in activity. In emerging economies, however, the responses do not depend on the exchange rate regime, but are larger when trade openness is high and vulnerability is low.

Suggested Citation

  • Rangan Gupta & Godwin Olasehinde-Williams & Mark E. Wohar, 2018. "The Impact of US Uncertainty Shocks on a Panel of Advanced and Emerging Market Economies: The Role of Exchange Rate, Trade and Financial Channels," Working Papers 201857, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201857
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Cheng, Chak Hung Jack & Hankins, William B. & Chiu, Ching-Wai (Jeremy), 2016. "Does US partisan conflict matter for the Euro area?," Economics Letters, Elsevier, vol. 138(C), pages 64-67.
    2. Giovanni Caggiano & Efrem Castelnuovo & Juan Manuel Figueres, 2020. "Economic Policy Uncertainty Spillovers in Booms and Busts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(1), pages 125-155, February.
    3. Christou, Christina & Cunado, Juncal & Gupta, Rangan & Hassapis, Christis, 2017. "Economic policy uncertainty and stock market returns in PacificRim countries: Evidence based on a Bayesian panel VAR model," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 92-102.
    4. Jae Sim & Egon Zakrajsek & Simon Gilchrist, 2010. "Uncertainty, Financial Frictions, and Investment Dynamics," 2010 Meeting Papers 1285, Society for Economic Dynamics.
    5. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    6. Chuliá, Helena & Gupta, Rangan & Uribe, Jorge M. & Wohar, Mark E., 2017. "Impact of US uncertainties on emerging and mature markets: Evidence from a quantile-vector autoregressive approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 178-191.
    7. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
    8. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    9. Efrem Castelnuovo & Guay Lim & Giovanni Pellegrino, 2017. "A Short Review of the Recent Literature on Uncertainty," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 50(1), pages 68-78, March.
    10. Michele Piffer & Maximilian Podstawski, 2018. "Identifying Uncertainty Shocks Using the Price of Gold," Economic Journal, Royal Economic Society, vol. 128(616), pages 3266-3284, December.
    11. Bhattarai, Saroj & Chatterjee, Arpita & Park, Woong Yong, 2020. "Global spillover effects of US uncertainty," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 71-89.
    12. Colombo, Valentina, 2013. "Economic policy uncertainty in the US: Does it matter for the Euro area?," Economics Letters, Elsevier, vol. 121(1), pages 39-42.
    13. Gupta, Rangan & Ma, Jun & Risse, Marian & Wohar, Mark E., 2018. "Common business cycles and volatilities in US states and MSAs: The role of economic uncertainty," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 317-337.
    14. Sangyup Choi, 2018. "The Impact of US Financial Uncertainty Shocks on Emerging Market Economies: An International Credit Channel," Open Economies Review, Springer, vol. 29(1), pages 89-118, February.
    15. Olivier J. Blanchard & Mitali Das & Hamid Faruqee, 2010. "The Initial Impact of the Crisis on Emerging Market Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 263-323.
    16. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
    17. Iacoviello, Matteo & Navarro, Gaston, 2019. "Foreign effects of higher U.S. interest rates," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 232-250.
    18. Pär Stockhammar & Pär Österholm, 2016. "Effects of US policy uncertainty on Swedish GDP growth," Empirical Economics, Springer, vol. 50(2), pages 443-462, March.
    19. Paul M. Jones & Eric Olson, 2015. "The International Effects of US Uncertainty," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(3), pages 242-252, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mehmet Balcilar & Rangan Gupta & Theshne Kisten, 2020. "The Impact of Uncertainty Shocks in South Africa: The Role of Financial Regimes," Working Papers 202046, University of Pretoria, Department of Economics.
    2. Titus Ayobami Ojeyinka & Dauda Olalekan Yinusa, 2023. "External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 132-153, January.
    3. Oguzhan Cepni & David Gabauer & Rangan Gupta & Khuliso Ramabulana, 2020. "Time-Varying Spillover of US Trade War on the Growth of Emerging Economies," Working Papers 202002, University of Pretoria, Department of Economics.
    4. Selçuk Gül & Rangan Gupta, 2021. "Time‐varying impact of global, region‐, and country‐specific uncertainties on the volatility of international trade," Contemporary Economic Policy, Western Economic Association International, vol. 39(4), pages 691-700, October.
    5. Siphumlile Mangisa & Sonali Das & Rangan Gupta, 2022. "Analyzing The Impact Of Brexit On Global Uncertainty Using Functional Linear Regression With Point Of Impact: The Role Of Currency And Equity Markets," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 67(04), pages 1377-1388, June.
    6. Woraphon Yamaka & Rangan Gupta & Sukrit Thongkairat & Paravee Maneejuk, 2023. "Structural and predictive analyses with a mixed copula‐based vector autoregression model," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(2), pages 223-239, March.
    7. Mehmet Balcilar & David Gabauer & Rangan Gupta & Christian Pierdzioch, 2021. "Uncertainty and Forecastability of Regional Output Growth in the United Kingdom: Evidence from Machine Learning," Working Papers 202111, University of Pretoria, Department of Economics.
    8. Afees A. Salisu & Rangan Gupta & Ahamuefula E. Ogbonna, 2020. "Point and Density Forecasting of Macroeconomic and Financial Uncertainties of the United States," Working Papers 202058, University of Pretoria, Department of Economics.
    9. Christina Christou & Giray Gozgor & Rangan Gupta & Chi keung Marco Lau, 2020. "Are Uncertainties across the World Convergent?," Economics Bulletin, AccessEcon, vol. 40(1), pages 855-862.
    10. Selçuk Gul & Rangan Gupta, 2020. "A Note on the Time-Varying Impact of Global, Region- and Country-Specific Uncertainties on the Volatility of International Trade," Working Papers 202025, University of Pretoria, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rangan Gupta & Chi Keung Marco Lau & Mark E. Wohar, 2019. "The impact of US uncertainty on the Euro area in good and bad times: evidence from a quantile structural vector autoregressive model," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(2), pages 353-368, May.
    2. Christou, Christina & Gabauer, David & Gupta, Rangan, 2020. "Time-Varying impact of uncertainty shocks on macroeconomic variables of the united kingdom: Evidence from over 150 years of monthly data," Finance Research Letters, Elsevier, vol. 37(C).
    3. Pierdzioch Christian & Gupta Rangan, 2020. "Uncertainty and Forecasts of U.S. Recessions," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(4), pages 1-20, September.
    4. Afees A. Salisu & Rangan Gupta & Riza Demirer, 2022. "The financial US uncertainty spillover multiplier: Evidence from a GVAR model," International Finance, Wiley Blackwell, vol. 25(3), pages 313-340, December.
    5. Rivolta, Giulia & Trecroci, Carmine, 2020. "Measuring the effects of U.S. uncertainty and monetary conditions on EMEs' macroeconomic dynamics," MPRA Paper 99403, University Library of Munich, Germany.
    6. Gupta, Rangan & Ma, Jun & Risse, Marian & Wohar, Mark E., 2018. "Common business cycles and volatilities in US states and MSAs: The role of economic uncertainty," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 317-337.
    7. Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Ozdemir, Huseyin & Aygun, Gurcan & Wohar, Mark E., 2022. "The macroeconomic impact of economic uncertainty and financial shocks under low and high financial stress," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    8. Tosapol Apaitan & Pongsak Luangaram & Pym Manopimoke, 2022. "Uncertainty in an emerging market economy: evidence from Thailand," Empirical Economics, Springer, vol. 62(3), pages 933-989, March.
    9. Tang, Wenjin & Ding, Saijie & Chen, Hao, 2021. "Economic uncertainty and its spillover networks: Evidence from the Asia-Pacific countries," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    10. Himounet, Nicolas, 2022. "Searching the nature of uncertainty: Macroeconomic and financial risks VS geopolitical and pandemic risks," International Economics, Elsevier, vol. 170(C), pages 1-31.
    11. Wu, Ji & Yao, Yao & Chen, Minghua & Jeon, Bang Nam, 2020. "Economic uncertainty and bank risk: Evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 68(C).
    12. Brianti, Marco, 2021. "Financial Shocks, Uncertainty Shocks, and Monetary Policy Trade-Offs," Working Papers 2021-5, University of Alberta, Department of Economics.
    13. Cepni, Oguzhan & Dul, Wiehan & Gupta, Rangan & Wohar, Mark E., 2021. "The dynamics of U.S. REITs returns to uncertainty shocks: A proxy SVAR approach," Research in International Business and Finance, Elsevier, vol. 58(C).
    14. Chuliá, Helena & Gupta, Rangan & Uribe, Jorge M. & Wohar, Mark E., 2017. "Impact of US uncertainties on emerging and mature markets: Evidence from a quantile-vector autoregressive approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 178-191.
    15. Caggiano, Giovanni & Castelnuovo, Efrem & Delrio, Silvia & Kima, Richard, 2021. "Financial uncertainty and real activity: The good, the bad, and the ugly," European Economic Review, Elsevier, vol. 136(C).
    16. Gächter, Martin & Geiger, Martin & Stöckl, Sebastian, 2020. "Credit intermediation and the transmission of macro-financial uncertainty: International evidence," Journal of International Money and Finance, Elsevier, vol. 108(C).
    17. Tosapol Apaitan & Pongsak Luangaram & Pym Manopimoke, 2020. "Uncertainty and Economic Activity: Does it Matter for Thailand?," PIER Discussion Papers 130, Puey Ungphakorn Institute for Economic Research.
    18. Giovanni Pellegrino, 2021. "Uncertainty and monetary policy in the US: A journey into nonlinear territory," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1106-1128, July.
    19. Sangyup Choi & Myungkyu Shim, 2019. "Financial vs. Policy Uncertainty in Emerging Market Economies," Open Economies Review, Springer, vol. 30(2), pages 297-318, April.
    20. Kim, Youngju & Lim, Hyunjoon & Sohn, Wook, 2020. "Which external shock matters in small open economies? Global risk aversion vs. US economic policy uncertainty," Japan and the World Economy, Elsevier, vol. 54(C).

    More about this item

    Keywords

    US uncertainty; Foreign spillovers; Local projection; Macroeconomic transmission; Panel data;
    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
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201857. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rangan Gupta (email available below). General contact details of provider: https://edirc.repec.org/data/decupza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.