The International Effects of US Uncertainty

Abstract

AbstractWe propose domestic uncertainty shocks may serve as a channel through which business cycles are transmitted internationally. To quantify uncertainty, we use two measures from the current literature and estimate vector autoregressions to evaluate the effects US uncertainty shocks have on the Japanese and British economies. Our results suggest that US uncertainty shocks have international effects consistent with a demand shock in the context of an open‐economy aggregate demand and aggregate supply model with sticky prices. Copyright © 2015 John Wiley & Sons, Ltd.