Economic policy uncertainty in a globalized world: insights from a cross-country analysis

Purpose The purpose of this study is to explore the connectedness of the economic policy uncertainty indices of 22 developed and emerging countries with the goal of determining the main transmitters and absorbers of economic uncertainty policy shocks. Design/methodology/approach We collected EPU index information for 22 countries in the years 2003–2023 and employed Ando et al.’s (2022) QVAR method to assess the spillovers of EPU in the middle and extreme quantiles. This approach is preferred, as shocks may be more prominent in extreme rather than normal market conditions. Finally, to validate the robustness of our findings, we also utilized the classic Diebold and Yilmaz’s (2012) approach. Findings Using 20 years’ worth of data for the EPU indices of 22 major countries, we document a pronounced level of interdependence between the EPU indices of international countries within the lower (10th quantile) and upper percentiles (90th quantile) of their distribution. In addition, that connectedness tends to increase as we move further away from the center of the distribution toward the extreme ends. This exploration is not only academically significant but also has important implications for investors, country-level policymakers and international firms navigating the global economy. Originality/value We present a thorough examination of the EPU spillovers in a cross-country manner, covering a long time period including financial crises. The results should add value to policymakers and decision-makers in their quest of ensuring financial and economic stability and to identify the main transmitters and receivers of risk spillovers.