Pass Through of Economic Policy Uncertainty Shock on Sovereign Credit Risk: A Panel VAR Approach
6 Pages Posted: 28 Sep 2023
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Pass Through of Economic Policy Uncertainty Shock on Sovereign Credit Risk: A Panel VAR Approach
Pass Through of Economic Policy Uncertainty Shock on Sovereign Credit Risk: A Panel VAR Approach
Abstract
I investigate how domestic economic policy uncertainty (EPU) affects sovereign credit risk, measured by the sovereign credit default swap (CDS) spreads through real effective exchange rate, sovereign bond yields, and consumer confidence index. I use monthly data from January 2009 to July 2020 for 10 major countries. Panel Vector Autoregression (PVAR) with a fixed effect estimator results indicate EPU has the most significant positive impact on sovereign credit risk. In contrast, the effect of EPU shock on sovereign bond yields, the real effective exchange rate, and the consumer confidence index appears to be less important.
Keywords: Policy Uncertainty, Sovereign Credit Risk, Panel VAR
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