Global effects of US uncertainty: real and financial shocks on real and financial markets

Abstract

We estimate the effects of financial, macroeconomic and policy uncertainty from the United States on the dynamics of credit growth, stock prices, economic activity, bond yields and inflation in five of the main receptors of US foreign direct investment from 1950 to 2019: The United Kingdom, The Netherlands, Ireland, Canada and Switzerland. Our multicounty approach allows us to clearly identify the effects of the different sources of uncertainty by imposing natural contemporaneous exogenity restrictions which cannot be used in a single-country perspective, frequently undertaken by the literature. It also considers international common cycle factors that have been previously identified and which are key to adequately measure the dynamics of the effects of uncertainty shocks on financial and real markets, on a global basis (...)