Macroeconomic effects of uncertainty shocks in emerging market economies

In a world of greater global integration, there is concern about how uncertainty shocks stemming from economic policy and financial conditions, especially those originating from the United States, impact the rest of the world. Using the global vector autoregression model, this research analyzes the impact of spikes in uncertainty on emerging market economies (EMEs). Increasing global and U.S.-based uncertainty lead to an economic slowdown, in the form of lower industrial production, along with an immediate increase in interest rates in EMEs. There is no effect on inflation.