Jakub Mistak
- 16 June 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 4, 2025Details
- Abstract
- This box explores the relationship between financial market volatility and economic policy uncertainty (EPU). Historically, financial market volatility and news-based measures of EPU have displayed close co-movement, albeit diverging at times and across countries. More recently, the rise in euro area EPU has reflected an intensification of an upward trend observed over a number of years, largely driven by developments in Germany. Focusing on Germany and using a large language model, a topic-based analysis of newspaper articles identifies domestic and global uncertainties as being behind the recent surge in EPU. Moreover, in line with empirical findings for the United States, a regression analysis shows that a disconnect between financial market volatility and EPU is more likely when equity market momentum is strong, while co-movement is more likely when that momentum is weak. This interpretation is consistent with developments following the US tariff announcement on 2 April, when the spike in financial market volatility aligned with persistently high EPU levels on the back of a significant sell-off in equity markets.
- JEL Code
- D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
- 29 October 2024
- WORKING PAPER SERIES - No. 2995Details
- Abstract
- This paper examines the asymmetry in global spillovers from Fed policy across tightening versus easing episodes several examples of which have been on display since the global financial crisis (GFC). We build a dynamic general equilibrium model featuring: (i) occasionally binding collateral constraints in the financial sector with significant cross-border exposure; and (ii) global supply chains, allowing us to match the asymmetry of spillovers across contractionary versus expansionary monetary policy shocks. We find clear asymmetries in the transmission of US monetary policy, with significantly larger spillovers during contractionary episodes under both conventional and unconventional monetary policy changes. Our results also reveal that the greater the size of international credit and supply chain networks and the policymakers’ aversion to exchange rate fluctuations in the rest of the world, the greater the spillover effects of US monetary policy shocks.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy