Spillovers of the US real and financial uncertainty on the Euro area

Abstract

ABSTRACT We study the spillovers of US real uncertainty and financial uncertainty shocks on Euro area economic activity in an SVAR framework. We find that a rise in US real or financial uncertainty triggers a decline in industrial production and an increase in credit spreads in the Euro area. The adverse effects of financial uncertainty shocks on Euro area industrial production are larger than those stemming from real uncertainty shocks (−0.8% versus −0.4%) due to a larger extent of financial friction. The contribution of US financial uncertainty shocks, vis-à-vis US real uncertainty shocks, to the Euro area is quantitatively more important.