The impact of policy uncertainty on macro-economy of developed and developing countries
CITATION: Nyawo, S. T. & Van Wyk, R. B. 2018. The impact of policy uncertainty on macro-economy of developed and developing countries. Journal of Economics and Behavioral Studies, 10(1):doi:10.22610/jebs.v10i1.2086.
The original publication is available at https://ojs.amhinternational.com
This paper investigates the effects of a US economic policy uncertainty shock on Indian macroeconomic variables with a number of Structural VARs. This study models the economic policy uncertainty index as constructed by Baker et al. (2013). The study also uses a set of macroeconomic variables for India such as inflation, industrial production and nominal interest rate. The objective of the study is to identify the potential impacts of economic policy uncertainty shocks from the US economy to the Indian economy. According to the SVARs, a one standard deviation shock to the US economic policy uncertainty leads to a statistically significant decline in the Indian industrial production of -0.294% and in the Indian inflation of -0.032%. India shows to be resistant to US policy uncertainty. Furthermore, the study finds that the contribution of the US economic policy uncertainty on the Indian macroeconomic variables is shown to be significantly larger than the one exerted by the Indian uncertainty shock.