Financial vs. Policy Uncertainty in Emerging Market Economies

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

While the negative effect of uncertainty shocks on economic activity is well documented in many empirical studies, little is known about the extent to which the effect differs across various kinds of uncertainty, especially in the emerging market economy context. Using the newly available economic policy uncertainty index from six emerging market economies (Brazil, Chile, China, India, Korea, and Russia), we compare the impact of financial uncertainty shocks—measured by stock market volatility—and that of policy uncertainty shocks on the economy. We find that financial uncertainty shocks have much larger and more significant impact on output than policy uncertainty shocks, except for China where the government has direct controls over financial market activity. While our finding differs from the existing studies about advanced economies that find no smaller effects of policy uncertainty shocks on output than financial uncertainty shocks, it is consistent with the recent emphasis on financial frictions as a propagation mechanism of uncertainty shocks.

Original languageEnglish
Pages (from-to)297-318
Number of pages22
JournalOpen Economies Review
Volume30
Issue number2
DOIs
Publication statusPublished - 2019 Apr 15

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Policy uncertainty
Emerging market economies
Uncertainty
China
India
Korea
Chile
Propagation mechanism
Brazil
Financial markets
Financial frictions
Stock market
Economic activity
Empirical study
Economic policy
Government
Russia
Market activity

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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Financial vs. Policy Uncertainty in Emerging Market Economies. / Choi, Sangyup; Shim, Myungkyu.

In: Open Economies Review, Vol. 30, No. 2, 15.04.2019, p. 297-318.

Research output: Contribution to journalArticle

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