On the transmission mechanism of country-specific and international economic uncertainty spillovers : evidence from a TVP-VAR connectedness decomposition approach

Abstract

We investigate the internal and external categorical economic policy uncertainty (EPU) spillovers between the US and Japan using a novel extension of the TVP-VAR connectedness approach of Antonakakis and Gabauer (2017). The decomposition of our approach gives us insights about the dynamics with and without international spillovers which has essential policy implications. Our results suggest that monetary policy uncertainty is the main driver, followed by uncertainties associated with fiscal, currency market and trade policies. Furthermore, we find that the Fukushima Daiichi accident can be interpreted as a negative trade shock that spread internationally.