Measuring co-dependencies of economic policy uncertainty in Latin American countries using vine copulas

Abstract

We analyze the dependence structure of economic policy uncertainty in four Latin American economies (Brazil, Chile, Colombia, Mexico) using vine copula modeling with various forms of tail dependence. Our results suggest that there are significant dependencies in economic uncertainty among the economies considered and that tail dependence is more prevalent in the period preceding the Global Financial Crisis and becomes less relevant in the post-crisis period. Previous works suggest that uncertainty in economic activity can have substantial effects on economic issues ranging from business cycles to contagion effects of financial crises. Correspondingly, our results have significant implications on the analysis of macroeconomic activity and contagion of financial crises, especially for emerging economies.