Global Uncertainty Spillovers: The Impact of U.S. Economic Policy Uncertainty on Emerging Market Volatility

Sammanfattning

This study examines Economic Policy Uncertainty (EPU) spillovers on equity volatility in the U.S., India, Brazil, Canada, and Japan using an augmented HAR-X framework. Findings identify the U.S. as a global uncertainty hub, and U.S. EPU shocks affect emerging markets more significantly than domestic factors. We reveal a state-dependent mechanism where EPU's predictive power intensifies during high-market-stress regimes. While spillovers are pervasive, emerging economies show higher vulnerability than developed counterparts. Rolling-window coefficient analysis uncovers significant time-varying dynamics, while out-of-sample tests confirm superior forecasting accuracy. These results highlight the need for emerging market policymakers to prioritize U.S. policy narratives in risk-management.