Monetary Policy Uncertainty in the United States and Investment Sentiment in Advanced Economies

Abstract How does uncertainty originating from the future path taken by monetary policy enacted by the Federal Reserve in the United States affect the business confidence in other advanced economies? Does US monetary policy uncertainty affect economic activity in the United States and in Canada, France, Germany, Italy, Japan, and the United Kingdom. Motivated to answer these questions, we use monthly data and a bivariate GARCH-in-Mean VAR model. We also use a multivariate structural VAR model and a different measure of US monetary policy uncertainty, achieving identification by a combination of short-run and long-run restrictions. Our evidence shows that US monetary policy uncertainty, irrespective of how it is measured, has negative effects on the business confidence and output in the advanced G7 economies.