The impact of US uncertainty on the Euro area in good and bad times: evidence from a quantile structural vector autoregressive model

• Published in: Empirica Vol. 46; no. 2; pp. 353 - 368
• Main Authors: Gupta, Rangan, Lau, Chi Keung Marco, Wohar, Mark E.
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-05-2019; Springer Nature B.V
• Subjects: Econometrics; Economic models; Economics; Economics and Finance; Euro; European Integration; Eurozone; Industrial Organization; Inflation; Interest rates; International Economics; Macroeconomics/Monetary Economics//Financial Economics; Original Paper; Policy making; Public Finance; Recessions; Regression analysis; Stimulus; Uncertainty; United States > US; Quantile structural vector autoregressive model; C32; Economic policy uncertainty; E32; E60; US-Euro area spillovers
• ISSN: 0340-8744; 1573-6911
• DOI: 10.1007/s10663-018-9400-3

We estimate a quantile structural vector autoregressive model for the Euro area to assess the real effects of uncertainty shocks in expansions and recessions using monthly data covering the period of 1999:02–2016:05. Domestic and foreign (US) uncertainty shocks hitting during recessions are found to produce a relatively overall stronger negative impact on output growth than in expansions, with US shocks having more pronounced effects. Inflation, in general, is unaffected from a statistical perspective. Our results tend to suggest that policymakers need to implement state-dependent policies, with stimulus policies being more aggressive during recessions—something we see from our results in terms of stronger declines in the interest rate during bad times.