Global Spillover Effects of US Uncertainty

Spillover effects of US uncertainty shocks are studied in a panel VAR of fifteen emerging market economies (EMEs). A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and decreases capital inflows into them. It decreases EME output and consumer prices while increasing net exports. Negative effects on output and asset prices are weaker, but effects on external balance stronger, for Latin American EMEs. We attribute such heterogeneity to differential EME monetary policy response to US uncertainty shocks. Analysis of central bank minutes shows Latin American EMEs pay less attention to smoothing capital flows.

Keywords: US Uncertainty; Panel VAR; Emerging Market Economies; Monetary Policy Response; Emerging Market Monetary Policy Minutes

JEL Classification: C11; C33; E44; E52; E58; F32

Suggested Citation: Suggested Citation

Bhattarai, Saroj and Chatterjee, Arpita and Park, Woong Yong, Global Spillover Effects of US Uncertainty (February 8, 2019). UNSW Economics Working Paper 2017-17a, Available at SSRN: https://ssrn.com/abstract=3072128 or http://dx.doi.org/10.2139/ssrn.3072128