This decreases with the longer horizon and with bond maturity, which points to a time-varying relationship between the countries. They also found that the largest spillovers from US were during times of unconventional times, noting the potential gains from policy coordination. The frequency analysis allows us to look at what happens to the spillovers between countries as time progresses using the full sample before we look at rolling window samples to graph the relationships. In the dynamic relationships, we find that most of the spillovers die down after the global financial crisis (GFC), decreasing in variance and moving to a level closer to zero. Econ Model 68:96–116, Miranda-Agrippino S, Rey H (2015) World asset markets and the global financial cycle. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. volume 9, Article number: 41 (2020) It is notable that the estimated contributions to the forecast error variance of US uncertainty stem mainly from its own innovations across all three frequency bands. uncertainty about monetary policy, including its transmission (Brainard (2017)). IMF Econ Rev 64(1):6–35, Tiwari AK, Cunado J, Gupta R, Wohar ME (2018) Volatility spillovers across global asset classes: evidence from time and frequency domains. Policy makers should consider accounting for the spillovers from the US, Germany, France and Spain, as we found that they are the most consistent net transmitters of monetary policy uncertainty. For the two 10-year bond yield datasets, there is a missing observation for Japan in Jul 2005 and is omitted for all the countries in the 10-year datasets. Displaying the importance of monetary policy uncertainty spillovers, Gabauer and Gupta (2018) found that monetary policy uncertainty is the main driver of EPU, followed by fiscal, then currency and finally trade policy uncertainty. In contrast, the diagonal elements of \(\vartheta (H)\) measure the contributions of shocks to variable i to its own forecast error variance. NBER Working Paper Series, No. (2019). We calculate the net spillovers from Tables 3, 4, 5, 6, 7, 8, 9 and 10, which provide a decomposition of the total spillovers into those coming from (or going to) other countries. They find that after Lehman Brothers filed for bankruptcy, the US changed from a net transmitter to a net receiver of financial uncertainty. Conditional on a monetary policy shock, higher uncertainty about monetary policy tends to make securities with longer maturities relatively more attractive to investors. Denoting GFEVD by \(\vartheta _{ij}\left( H\right) \) as follows: where \(\sigma _{jj}\) is the standard deviation (SD) of the disturbances for the variable j. Diebold and Yilmaz (2009, 2012, 2015) proposed the methodology of measuring the interdependence of variables based on generalized forecast error variance decomposition in a vector autoregressive (VAR) model. Department of Economics, University of Pretoria, Pretoria, 0002, South Africa, Huddersfield Business School, University of Huddersfield, Huddersfield, HD1 3DH, United Kingdom, University of Pretoria, Pretoria, 0002, South Africa, Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, UK, You can also search for this author in Xin Sheng. Most of the relationships are more stable after the GFC. This yields four IRU measures, which shows how uncertainty differs between the short and long term. Econ J 119(534):158–171, Diebold FX, Yilmaz K (2012) Better to give than to receive: predictive directional measurement of volatility spillovers. Balcilar et al. (2018) investigated the effect of EPU on the business cycle for 48 US states and 51 metropolitan statistical areas. (2014), which looked at Granger causality, both linear and non-linear. Rey (2016) argued that the modern global financial cycle challenges the Mundellian trilemma since the exchange rate of a country is more important when it comes to maintaining a stable level. The effects of monetary policy on uncertainty are similar but somewhat weaker. Risk, uncertainty and monetary policy. This is consistent with the results shown in Table 2, where the static analysis captured these net receptions. The methodology uses generalized forecast error variance decomposition to identify bi-directional spillovers, where the GARCH-in-mean VAR used by Nsafoah et al. Baruník and Křehlík (2018) employ the spectral representation of GFEVD to define connectedness measures on different frequency bands of interest. In the long term, our results show that the total spillover index is \(73.51\%\), indicating that nearly three-quarters of forecast error variance in the long term come from spillovers. Future studies in this area can also look at the bi-directional spillovers between developed and developing countries. Their findings support the arguments made by Rey (2015), as the large amounts of dollar debt in other countries, and the close link between monetary policy and exchange rate, influence their monetary policy discretion. In the presence Oxford University Press, New York, Gabauer D, Gupta R (2018) On the transmission mechanism of country-specific and international economic uncertainty spillovers: evidence from a TVP-VAR connectedness decomposition approach.

monetary policy uncertainty

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