Does Economic Policy Uncertainty Lead Systemic Risk? A Comparative Analysis of Selected European Countries
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We study the relationship between economic policy uncertainty and systemic risk for nine European countries in January 2010–September 2016 by applying conventional Granger causality tests and advanced techniques (wavelet analysis and Bayesian VARs). The country-level analyses show that the lead-lag patterns vary considerably in the short and longer run as well as at different frequencies. Nonetheless, the pivotal role of uncertainty tends to strengthen over longer time horizons (at lower frequencies) and in the BVAR framework. This is true for financially fragile economies such as Ireland, Italy, Russia, Spain. A panel BVAR model confirms this finding for the whole sample.
KeywordsBayesian VAR Dynamic factor model Economic policy uncertainty Systemic risk Wavelet coherence
JEL ClassificationC32 C38 G32
The paper was presented at the Second World Congress of Comparative Economics, “Revolution and Evolution in Economic Development,” in St. Petersburg, Russia, June 15–17, 2017. Comments by two anonymous referees have been welcome. We are also grateful to Paul Wachtel for his support and patience.
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