Title: Economic policy uncertainty spillovers in booms and busts
Authors: Giovanni Caggiano - University of Padova (Italy) [presenting]
Abstract: A nonlinear VAR is estimated to quantify the impact of economic policy uncertainty shocks originating in the U.S. on the Canadian business cycle in booms and busts. We find strong evidence in favor of asymmetric spillover effects. Uncertainty shocks originating in the U.S. explain about 27\% of the variance of the 2-year ahead forecast error of the Canadian unemployment rate in periods of slack vs. 8\% during economic booms. Counterfactual simulations lead to the identification of a novel ``economic policy uncertainty spillovers channel''. According to this channel, spikes in U.S. economic policy uncertainty foster economic policy uncertainty in Canada in first place and, because of the latter, lead to a temporary increase in the Canadian unemployment rate. This channel is shown to work only in periods of slack.