Jaromír Baxa

Tomáš Šestořád

Common uncertainty, economic policy uncertainty, panel VAR, spillovers

C32, F42, F45

Baxa J., Šestořád T. (2024): " Economic Policy Uncertainty in Europe: Spillovers and Common Shocks " IES Working Papers 34/2024. IES FSV. Charles University.

This paper proposes a novel approach to decompose the Economic Policy Uncertainty indices of European countries into the common and country-specific components using the time-varying total connectedness. Then, by employing a Bayesian panel VAR model, we assess how common and country-specific uncertainty shocks influence economic activity, prices, and monetary policy, with the shocks identified using zero and sign restrictions. Our results reveal that only common shocks have significant effects on all macroeconomic variables. This result is robust across alternative samples and structural identifications. Therefore, our findings imply that policymakers should focus on uncertainty shocks that are synchronized across countries.