Economic policy uncertainty: Persistence and cross-country linkages

This paper provides new evidence on the stochastic behaviour of EPU (Economic Policy Uncertainty (EPU) index constructed by Baker et al. (2016) in six biggest economies (Canada, France, Japan, US, Ireland, and Sweden), also cross-country linkages, over period from January 1985 to October 2019. For this purpose, it uses fractional integration/cointegration methods measure degree persistence whether there exists a long-run equilibrium relationship linking individual indices. framework is much more general than standard approaches based I(0)/I(1) dichotomy since allows for values parameter therefore does not impose restrictive assumptions dynamic series their linkages. found be most cases non-stationary, mean-reverting which characterised long memory. Several breaks are detected each country. Finally, very little Our analysis fresh insights into transmission shocks has implications both investors having make risk management decisions choose investment strategies policymakers design effective macroeconomic policies.