Global Spillover Effects Of US Uncertainty
Author(s) Saroj Bhattarai, Arpita Chatterjee and Woong Yong Park


We study spillover effects of US uncertainty fluctuations using data from fifteen emerging market economies (EMEs) in a panel VAR framework. A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and leads to capital outflows from them. Moreover, it decreases EME output, while increasing their consumer prices and net exports. The negative effects on output, exchange rates, and stock prices are weaker, but the effects on capital and trade flows stronger, for South American countries compared to other EMEs. We present a model of a small open economy that faces an external shock to interpret our empirical findings. Theoretically and empirically, we link the heterogeneity in effects across the two groups of EMEs to their differential monetary policy response to the US uncertainty shock.

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