Greek economic policy uncertainty: does it matter for Europe? Evidence from a dynamic connectedness decomposition approach

Nikolaos Antonakakis, David Gabauer, Rangan Gupta

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    Abstract

    This study examines the propagation mechanism of economic policy uncertainty shocks within Greece and between Greece and Europe over the period of January, 1998 and May, 2018. Further insights about the Greek-internal and external dynamics of economic policy uncertainty are provided by employing the recently developed dynamic connectedness decomposition approach of Gabauer and Gupta (2018). Our analysis reveals that Greek economic policy uncertainty is dominating the European economic policy uncertainty nearly permanently throughout the period of analysis. In particular, the Greek banking policy uncertainty (capital controls) and Greek currency policy uncertainty (Grexit rumors) have been significant net pairwise transmitters with respect to the European economic policy uncertainty. In addition, the Greek-internal transmission mechanism indicates that, Greek fiscal policy uncertainty indices are driven by Greek related monetary policy indices. Finally, our impulse response analysis suggests that the persistence of monetary policy related shocks is varying over time and increased after the Global Financial Crisis of 2007–2009. This magnifying effect explains partially the prolonged recovery of the European economy.
    Original languageEnglish
    Article number122280
    Number of pages13
    JournalPhysica A: Statistical Mechanics and its Applications
    Volume535
    Early online date26 Aug 2019
    DOIs
    Publication statusPublished - 1 Dec 2019

    Keywords

    • TVP-VAR
    • Dynamic connectedness
    • Dynamic connectedness decomposition
    • Categorical economic policy uncertainty spillovers

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