The Impact of Economic Policy Uncertainty in the Latin-american Business Cycle
Nicolás Bastías, and Camila Leiva
Work in Progress. In Spanish , Jul 2023
Numerous studies have investigated the impact of uncertainty on real macroeconomic variables driving the business cycle, but fewer have examined its effects in emerging economies. Using a panel vector autoregressive (PVAR) model, we explore the impact of uncertainty on economic policies across Latin America. Our results suggest that in small and open economies, an uncertainty shock has negative effects on the region’s economic outcomes. Higher uncertainty could lead to a decline in investment by between 1.72% and 2.85% in the first quarter, between 0.49% and 0.65% for consumption, between 0.29% and 0.51% for output, and between 0.05% and 0.17% for employment. These results are consistent with the evidence, where greater uncertainty is associated with a postponement of investment, consumption, and hiring decisions, generating a depressive effect on growth.