2013 Spillover Report - Analytical Underpinnings and Other Background

Policy Papers, July 3, 2013

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High uncertainty in general, and high policy uncertainty more specifically, can have important impact on global investment and output growth.
Much of the recent policy uncertainty emanated from the United States and Europe—the world’s two largest economies.
This background note attempts to quantify the impact of U.S. and European policy uncertainty on other regions.
Key questions addressed:
- What do we mean by policy uncertainty?
- How well can we measure it?
- How has policy uncertainty in the United States and Europe evolved during the past several decades?
- How large are the spillovers to economic activity in other regions?

Trade channel:
- Trade can be affected if increased policy uncertainty adversely affects economic activity and import demand in the United States and Europe.
Financial/ risk-aversion channel:
- Policy uncertainty could raise global risk aversion, resulting in sharp corrections in financial markets and capital outflows from emerging markets.

The analysis suggests that sharp increases in U.S. and European policy uncertainty in the past have temporarily lowered investment and output in other regions to varying degrees.
The analysis suggests that a marked decrease in policy uncertainty in the United States and Europe in the near term could help boost global investment and output.

Title: 2013 Spillover Report - Analytical Underpinnings and Other Background
Publication date: July 3, 2013
Citation preview format: Chicago
Citation preview text: 2013 Spillover Report - Analytical Underpinnings and Other Background, (USA: International Monetary Fund, 0) accessed 9/17/2026
Subject tags: Background papers, Capital flows, China, Europe, Fiscal policy, Japan, Monetary policy, Spillovers, United Kingdom, United States

International Monetary Fund