Interconnectedness of Different Economic Uncertainties: Evidence from India

This paper explores the interrelationships among various economic uncertainty measures based on Indian data. These measures are economic policy uncertainty (EPU), financial uncertainty (VIX), output uncertainty, price uncertainty, yield uncertainty and exchange rate uncertainty. These individual uncertainties, while often studied in seclusion, are highly interdependent and play a significant role in shaping broader macroeconomic uncertainty. To explore these interconnections, we use wavelet analysis and the Additive Bayesian Network (ABN) methods. Wavelet analysis enables us to investigate the dynamic relationships between uncertainties across time and frequency domains. Findings reveal significant interconnections during major economic crises, such as the Global Financial Crisis (GFC), the Taper Tantrum and COVID-19. The ABN analysis identifies exchange rate and output uncertainties as the main drivers amplifying other economic uncertainties, whereas price uncertainty is independent. Results provide novel evidence for identifying leading sources for wider macroeconomic uncertainty propagation in the case of India and contribute to existing literature on exploring the interdependence of different economic uncertainties.