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Economic Policy Uncertainty, Interest Rates And Inflation: Evidence From Selected Latin American Emerging Markets

Year 2022, Volume: 7 Issue: 2, 578 - 590, 30.12.2022

Abstract

In this study, the relationship between the economic policy uncertainty index, interest and inflation rates between 1998 and 2020 in Latin American countries, Colombia, Chile, Mexico and Brazil, which are among the emerging markets, was analyzed with the TVP-VAR model. As a result of TVP-VAR analysis, it was concluded that there is a positive relationship between inflation, interest rates and economic policy uncertainty index in the short run in Colombia, Chile and Brazil. In the Mexican economy, on the other hand, it has been determined that there is a positive relationship between the inflation rate and the economic policy uncertainty index in the short run and a negative relationship with interest rates. As the period gets longer, the relationship between the variables changes positively. In addition, it was concluded that the effect of the economic policy uncertainty index on inflation and interest rates in the countries examined in the study is close to 0 in the long run. In Colombia, Chile, Brazil and Mexico, inflation and interest rates affect the economic policy uncertainty index, may cause uncertainty in variables, and economic expectations may be adversely affected by this situation.

References

  • Aisen, A.& Veiga, F.J. (2006). “Political Instability and Inflationvolatility”. IMF Working Paper No. 06/212 .
  • Al-Thaqeb, S.A.,& Algharabali ,B.G.(2019). Economic Policy Uncertainty: A Literature Review .The Journal of Economic Asymmetries, 20 (2019),1-11.
  • Arbatli, E., Davis, S.J, Ito, A. & N. Miake.(2019). Policy Uncertainty in Japan .NBER Working Paper 23411. Revised, August 2019.
  • Armelius, H., Hull, I. & H.S. Köhler. (2017). The Timing of Uncertainty Shocks in a Small Open Economy .Economics Letters, 155 (June),31-34.
  • Bahmani-Oskooee, M., A.M. Kutan, & D. Xi. (2013). The Impact Of Economic and Monetary Uncertainty On The Demand For Money In Emerging Economies. Applied Economics . 45 (23): 3278–3287.
  • Bahmani-Oskooee, M., S. Bahmani, A. Kones & A.M. Kutan. (2015). Policy Uncertainty and The Demand For Money In The United Kingdom. Applied Economics .47 (11): 1151–1157
  • Bahmani-Oskooee ,M., Amor,T.H., Nayeri , M.M.& Niroomand, F.(2019). On the Link Between Real Effective Value of Tunisia’s Dinar and Its Sectoral Trade With The Rest Of The World: New Evidence From Asymmetry Analysis. The Quarterly Review of Economics and Finance. 73( C): 111-118.
  • Baker S., Bloom N., & S.J. Davis. (2013). Measuring Economic Policy Uncertainty. Chicago Booth Research Paper No. 13-02.
  • Baker, S. R., Bloom, N., & S. J. Davis. ( 2016). Measuring Economic Policy Uncertainty .Quarterly Journal of Economics, 131(4), 1593-1636.
  • Baker, S.R., Bloom, N., Davis, S.J. & Xiaoxi Wang. (2013). Economic Policy Uncertainty in China . Unpublished paper, University of Chicago.
  • Balcilar, M., Gupta, R., & M. Segnon. (2016). The Role Of Economic Policy Uncertainty In Predicting US Recessions: A Mixed-Frequency Markov-Switching Vector Autoregressive Approach .Economics, 10(27), 1–20.
  • Belke, A., I. Dubova, & T. Osowski. (2018). Policy Uncertainty and International Financial Markets: The Case of Brexit .Applied Economics, 50(34-35),.3752-3770.
  • Bloom, N.(2009). The Impact of Uncertainty Shocks .Econometrica, 77(3), 623–685.
  • Bloom, N. (2014). Fluctuations in Uncertainty .Journal of Economic Perspective, 28 (4), 153–176.
  • Brandao-Marques, L., Gelos, G., Harjes, T., Sahay, R., & Yi Xue. (2020), Monetary Policy Transmission in Emerging Markets and Developing Economies .IMF Working Paper, WP/20/35.
  • Catik, N. A., & Akdeniz, C. (2019). The Evolution of the Monetary Transmission Channels in Turkey: Evidence from a TVP-VAR Model .Applied Economics Letters, 26(13), 1072-1079.
  • Cerda, R., A. Silva & J. T. Valente.(2016). Economic Policy Uncertainty Indices for Chile .Working paper.
  • Choi, W.G.&. Oh.S.( 2003). A Money Demand Function With Output Uncertainty, Monetary Uncertainty, and Financial Innovations. Journal of Money, Credit, and Banking. 35 (5): 685–709.
  • Colombo, V.(2013). Economic Policy Uncertainty.in The US: Does İt Matter For The Euro Area?. Economics Letters. 121(1), 39–42.
  • Davis, S. J. (2016). “An Index of Global Economic Policy Uncertainty. Macroeconomic Review”. NBER Working Paper No. 22740.
  • Davis, S. J., Liu, D. & X.S. Sheng, (2019). Economic Policy Uncertainty in China Since 1946: The View from Mainland Newspapers. Working paper.
  • De Wind, J.,& Grabska, K. (2016). The Impact of Uncertainty Shocks: Continental versus the Anglo-Saxon World. CPB Discussion Paper 335, September. Rotterdam: CPB, Netherlands Bureau for Economic Policy Analysis.
  • Foerster, A. (2014). The Asymmetric Effects of Uncertainty . Economic Review, 5–26.
  • Foxley, A.(1983). Latin American Experiments In Neoconservative Economics. University of California Press.
  • Galbraith, JK. (1977). The Age of Uncertainty. Houghton Mifflin Harcourt.
  • Ghirelli, C., J.J. Perez, & A. Urtasun.(2019). A New Economic Policy Uncertainty Index for Spain. Bank of Spain. WorkingPaper No. 1906.
  • Gil, M., Silva, D. (2018). Economic Policy Uncertainty Indices for Colombia .Working paper.
  • Ghosh, R., Bagchi,B & Chatterjee, S. (2022), The Effect of Economic Policy Uncertainty Index on The Indian Economy In The Wake of COVID-19 Pandemic. Journal of Economic and Administrative Sciences, : https://doi.org/10.1108/JEC-12-2021-0175.
  • Grier, B.K, Henry, O.T., Olekalns, N.& K. Shields. (2004). The Asymmetric Effects of Uncertainty on Inflation and Output Growth .Journal of Applied Econometrics,14(5),551-565.
  • Gürsoy, S.(2021), Küresel Ekonomik Politik Belirsizliğin (Gepu) Döviz Kuru, Enflasyon ve Borsa Etkisi: Türkiye`den Kanıtlar. Türkiye Mesleki ve Sosyal Bilimler Dergisi. 3( 5): 120-131.
  • Handley, K., & Limao, N. (2015). Trade and Investment Under Policy Uncertainty: Theory and Firm Evidence. American Economic Journal: Economic Policy. 7(4), 189–222.
  • Hardouvelis, G. A., Karalas, G.I., Karanastasis, D.I. & P. K. Samartzis. (2018). Economic Policy Uncertainty, Political Uncertainty, and the Greek Economic Crisis .Working paper, May.
  • Istiaka,K., & Serletisb, A. (2018). Economic Policy Uncertainty and Real Output: Evidence From The G7 Countries. Applied Economics,2018, Vol. 50, No. 39, 4222–4233.
  • Istiak, K., & Alam, M. R. (2019). Oil Prices, Policy Uncertainty, and Asymmetries in Inflation Expectations, Journal of Economic Studies, 46(2),324–334.
  • Ivanovski ,K.& Churchill, S.A.(2019), Economic Policy Uncertainty and Demand For Money In Australia. Applied Economics. 51(41): 4516–4526.
  • Jones, P. M., & Olson, E.(2013). The Time-Varying Correlation Between Uncertainty, Output, and İnflation: Evidence From A DCC-GARCH Model .Economics Letters. 118(1), 33–37.
  • Kang, W., R. A. Ratti, & J. Vespignani. (2017). The Impact of Global Uncertainty on the Global Economy, and Large Developed and Developing Economies .CAMA Working Paper No. 9/2017.
  • Kroese, L., S. Kok & J. Parlevliet (2015). Beleidsonzekerheid in Nederland. Economisch Statistische Berichten, No. 4715, 464-467.
  • Lee, J & Strazicich, MC. (2003). Minimum Lagrange Multiplier Unit Root Test With Two Structural Breaks .The Review of Economics and Statistics, 85,1082–1089
  • Mueller, P., Tahbaz-Salehi, A., & A. Vedolin, A. (2017). Exchange Rates And Monetary Policy Uncertainty .The Journal of Finance. 72(3), 1213–1252.
  • Nakajima, J. (2011). Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications .Monetary and Economic Studies, 29, 107–142.
  • Perron, P. (1989). The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis. Econometrica, 57(6):1361-1401.
  • Primiceri, G. E. (2005). Time-Varying Structural Vector Autoregressions and Monetary Policy .The Review of Economic Studies,72 (3), 821–852.
  • Rodrik, D. (1991). Policy Uncertainty and Private Investment in Developing Countries .Journal of Development Economics, 36: 229–242
  • Samonis, V. (2003). Emerging Markets: Their Origins, Nature .Geography, https://www.samonis.com/business.htm#chapt1, 10/05/2020.
  • Saud Asaad A.T., & Barrak G.A. (2019). Economic Policy Uncertainty: A Literature Review .The Journal of Economic Asymmetries,(20):1-11.
  • Stock, J. H. & M. W. Watson. (2012). “Disentangling the Channels of the 2007-09 Recession”. Brookings Papers on Economic Activity, Spring, 81-156.
  • Qureshi, F., (2021). COVID-19 Pandemic, Economic Indicators and Sectoral Returns: Evidence From US and China. Economic Research. https://doi.org/10.1080/1331677X.2021.1934508
  • Wang, Y., Chen, C. R., & Huang, Y. S. (2014). Economic Policy Uncertainty and Corporate Investment: Evidence From China .Pacific-Basin Finance Journal.26. 227–243.
  • Yu,M.&Song,J.(2018), Volatility Forecasting: Global Economic Policy Uncertainty and Regime Switching, Phisyca A.511.316-323.
  • Zalla, R. (2016). “Economic Policy Uncertainty in Ireland ."Working paper, 20 September.
  • Zivot, E.& Andrews, D. (1992). Further Evidence On The Great Crash, The OilPrice Shock, and The Unit Root Hypothesis. Journal of Business & Economic Statistics.10(3) :251-270.
  • https://www.policyuncertainty.com/20/06/2020
  • https://www.msci.com/market-cap-weighted-indexes
  • https://www.msci.com/our-solutions/indexes/emerging-markets

Ekonomik Politika Belirsizliği, Faiz Oranları ve Enflasyon:Seçili Latin Amerika Yükselen Piyasalarından Bulgular

Year 2022, Volume: 7 Issue: 2, 578 - 590, 30.12.2022

Abstract

Bu çalışmada, gelişmekte olan piyasalar içinde yer alan Latin Amerika ülkelerinden, Kolombiya, Şili, Meksika ve Brezilya'da 1998-2020 yılları arasında ekonomi politikası belirsizlik endeksi, faiz ve enflasyon oranları arasındaki ilişki TVP-VAR modeli ile analiz edilmiştir. TVP-VAR analizi sonucunda Kolombiya, Şili ve Brezilya'da kısa dönemde enflasyon, faiz oranları ve ekonomi politikası belirsizlik endeksi arasında pozitif bir ilişki olduğu sonucuna varılmıştır. Meksika ekonomisinde ise kısa dönemde enflasyon oranı ile ekonomi politikası belirsizlik endeksi arasında pozitif, faiz oranları ile negatif bir ilişkinin olduğu tespit edilmiştir. Dönem uzadıkça değişkenler arası ilişki poztife doğru değişim göstermektedir. Ayrıca çalışmada incelenen ülkelerde ekonomi politikası belirsizlik endeksinin enflasyon ve faiz oranları üzerindeki etkisinin uzun dönemde 0'a yakın olduğu sonucuna ulaşılmıştır. Kolombiya, Şili, Brezilya ve Meksika'da enflasyon ve faiz oranları ekonomi politikası belirsizlik endeksini etkilemekte, değişkenlerde belirsizliğe yol açabilmekte ve ekonomik beklentiler bu durumdan olumsuz etkilenebilmektedir.

References

  • Aisen, A.& Veiga, F.J. (2006). “Political Instability and Inflationvolatility”. IMF Working Paper No. 06/212 .
  • Al-Thaqeb, S.A.,& Algharabali ,B.G.(2019). Economic Policy Uncertainty: A Literature Review .The Journal of Economic Asymmetries, 20 (2019),1-11.
  • Arbatli, E., Davis, S.J, Ito, A. & N. Miake.(2019). Policy Uncertainty in Japan .NBER Working Paper 23411. Revised, August 2019.
  • Armelius, H., Hull, I. & H.S. Köhler. (2017). The Timing of Uncertainty Shocks in a Small Open Economy .Economics Letters, 155 (June),31-34.
  • Bahmani-Oskooee, M., A.M. Kutan, & D. Xi. (2013). The Impact Of Economic and Monetary Uncertainty On The Demand For Money In Emerging Economies. Applied Economics . 45 (23): 3278–3287.
  • Bahmani-Oskooee, M., S. Bahmani, A. Kones & A.M. Kutan. (2015). Policy Uncertainty and The Demand For Money In The United Kingdom. Applied Economics .47 (11): 1151–1157
  • Bahmani-Oskooee ,M., Amor,T.H., Nayeri , M.M.& Niroomand, F.(2019). On the Link Between Real Effective Value of Tunisia’s Dinar and Its Sectoral Trade With The Rest Of The World: New Evidence From Asymmetry Analysis. The Quarterly Review of Economics and Finance. 73( C): 111-118.
  • Baker S., Bloom N., & S.J. Davis. (2013). Measuring Economic Policy Uncertainty. Chicago Booth Research Paper No. 13-02.
  • Baker, S. R., Bloom, N., & S. J. Davis. ( 2016). Measuring Economic Policy Uncertainty .Quarterly Journal of Economics, 131(4), 1593-1636.
  • Baker, S.R., Bloom, N., Davis, S.J. & Xiaoxi Wang. (2013). Economic Policy Uncertainty in China . Unpublished paper, University of Chicago.
  • Balcilar, M., Gupta, R., & M. Segnon. (2016). The Role Of Economic Policy Uncertainty In Predicting US Recessions: A Mixed-Frequency Markov-Switching Vector Autoregressive Approach .Economics, 10(27), 1–20.
  • Belke, A., I. Dubova, & T. Osowski. (2018). Policy Uncertainty and International Financial Markets: The Case of Brexit .Applied Economics, 50(34-35),.3752-3770.
  • Bloom, N.(2009). The Impact of Uncertainty Shocks .Econometrica, 77(3), 623–685.
  • Bloom, N. (2014). Fluctuations in Uncertainty .Journal of Economic Perspective, 28 (4), 153–176.
  • Brandao-Marques, L., Gelos, G., Harjes, T., Sahay, R., & Yi Xue. (2020), Monetary Policy Transmission in Emerging Markets and Developing Economies .IMF Working Paper, WP/20/35.
  • Catik, N. A., & Akdeniz, C. (2019). The Evolution of the Monetary Transmission Channels in Turkey: Evidence from a TVP-VAR Model .Applied Economics Letters, 26(13), 1072-1079.
  • Cerda, R., A. Silva & J. T. Valente.(2016). Economic Policy Uncertainty Indices for Chile .Working paper.
  • Choi, W.G.&. Oh.S.( 2003). A Money Demand Function With Output Uncertainty, Monetary Uncertainty, and Financial Innovations. Journal of Money, Credit, and Banking. 35 (5): 685–709.
  • Colombo, V.(2013). Economic Policy Uncertainty.in The US: Does İt Matter For The Euro Area?. Economics Letters. 121(1), 39–42.
  • Davis, S. J. (2016). “An Index of Global Economic Policy Uncertainty. Macroeconomic Review”. NBER Working Paper No. 22740.
  • Davis, S. J., Liu, D. & X.S. Sheng, (2019). Economic Policy Uncertainty in China Since 1946: The View from Mainland Newspapers. Working paper.
  • De Wind, J.,& Grabska, K. (2016). The Impact of Uncertainty Shocks: Continental versus the Anglo-Saxon World. CPB Discussion Paper 335, September. Rotterdam: CPB, Netherlands Bureau for Economic Policy Analysis.
  • Foerster, A. (2014). The Asymmetric Effects of Uncertainty . Economic Review, 5–26.
  • Foxley, A.(1983). Latin American Experiments In Neoconservative Economics. University of California Press.
  • Galbraith, JK. (1977). The Age of Uncertainty. Houghton Mifflin Harcourt.
  • Ghirelli, C., J.J. Perez, & A. Urtasun.(2019). A New Economic Policy Uncertainty Index for Spain. Bank of Spain. WorkingPaper No. 1906.
  • Gil, M., Silva, D. (2018). Economic Policy Uncertainty Indices for Colombia .Working paper.
  • Ghosh, R., Bagchi,B & Chatterjee, S. (2022), The Effect of Economic Policy Uncertainty Index on The Indian Economy In The Wake of COVID-19 Pandemic. Journal of Economic and Administrative Sciences, : https://doi.org/10.1108/JEC-12-2021-0175.
  • Grier, B.K, Henry, O.T., Olekalns, N.& K. Shields. (2004). The Asymmetric Effects of Uncertainty on Inflation and Output Growth .Journal of Applied Econometrics,14(5),551-565.
  • Gürsoy, S.(2021), Küresel Ekonomik Politik Belirsizliğin (Gepu) Döviz Kuru, Enflasyon ve Borsa Etkisi: Türkiye`den Kanıtlar. Türkiye Mesleki ve Sosyal Bilimler Dergisi. 3( 5): 120-131.
  • Handley, K., & Limao, N. (2015). Trade and Investment Under Policy Uncertainty: Theory and Firm Evidence. American Economic Journal: Economic Policy. 7(4), 189–222.
  • Hardouvelis, G. A., Karalas, G.I., Karanastasis, D.I. & P. K. Samartzis. (2018). Economic Policy Uncertainty, Political Uncertainty, and the Greek Economic Crisis .Working paper, May.
  • Istiaka,K., & Serletisb, A. (2018). Economic Policy Uncertainty and Real Output: Evidence From The G7 Countries. Applied Economics,2018, Vol. 50, No. 39, 4222–4233.
  • Istiak, K., & Alam, M. R. (2019). Oil Prices, Policy Uncertainty, and Asymmetries in Inflation Expectations, Journal of Economic Studies, 46(2),324–334.
  • Ivanovski ,K.& Churchill, S.A.(2019), Economic Policy Uncertainty and Demand For Money In Australia. Applied Economics. 51(41): 4516–4526.
  • Jones, P. M., & Olson, E.(2013). The Time-Varying Correlation Between Uncertainty, Output, and İnflation: Evidence From A DCC-GARCH Model .Economics Letters. 118(1), 33–37.
  • Kang, W., R. A. Ratti, & J. Vespignani. (2017). The Impact of Global Uncertainty on the Global Economy, and Large Developed and Developing Economies .CAMA Working Paper No. 9/2017.
  • Kroese, L., S. Kok & J. Parlevliet (2015). Beleidsonzekerheid in Nederland. Economisch Statistische Berichten, No. 4715, 464-467.
  • Lee, J & Strazicich, MC. (2003). Minimum Lagrange Multiplier Unit Root Test With Two Structural Breaks .The Review of Economics and Statistics, 85,1082–1089
  • Mueller, P., Tahbaz-Salehi, A., & A. Vedolin, A. (2017). Exchange Rates And Monetary Policy Uncertainty .The Journal of Finance. 72(3), 1213–1252.
  • Nakajima, J. (2011). Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications .Monetary and Economic Studies, 29, 107–142.
  • Perron, P. (1989). The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis. Econometrica, 57(6):1361-1401.
  • Primiceri, G. E. (2005). Time-Varying Structural Vector Autoregressions and Monetary Policy .The Review of Economic Studies,72 (3), 821–852.
  • Rodrik, D. (1991). Policy Uncertainty and Private Investment in Developing Countries .Journal of Development Economics, 36: 229–242
  • Samonis, V. (2003). Emerging Markets: Their Origins, Nature .Geography, https://www.samonis.com/business.htm#chapt1, 10/05/2020.
  • Saud Asaad A.T., & Barrak G.A. (2019). Economic Policy Uncertainty: A Literature Review .The Journal of Economic Asymmetries,(20):1-11.
  • Stock, J. H. & M. W. Watson. (2012). “Disentangling the Channels of the 2007-09 Recession”. Brookings Papers on Economic Activity, Spring, 81-156.
  • Qureshi, F., (2021). COVID-19 Pandemic, Economic Indicators and Sectoral Returns: Evidence From US and China. Economic Research. https://doi.org/10.1080/1331677X.2021.1934508
  • Wang, Y., Chen, C. R., & Huang, Y. S. (2014). Economic Policy Uncertainty and Corporate Investment: Evidence From China .Pacific-Basin Finance Journal.26. 227–243.
  • Yu,M.&Song,J.(2018), Volatility Forecasting: Global Economic Policy Uncertainty and Regime Switching, Phisyca A.511.316-323.
  • Zalla, R. (2016). “Economic Policy Uncertainty in Ireland ."Working paper, 20 September.
  • Zivot, E.& Andrews, D. (1992). Further Evidence On The Great Crash, The OilPrice Shock, and The Unit Root Hypothesis. Journal of Business & Economic Statistics.10(3) :251-270.
  • https://www.policyuncertainty.com/20/06/2020
  • https://www.msci.com/market-cap-weighted-indexes
  • https://www.msci.com/our-solutions/indexes/emerging-markets
There are 55 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Research Article
Authors

Deniz Aytaç 0000-0001-7546-2734

Taha Bahadır Saraç 0000-0001-6911-854X

Publication Date December 30, 2022
Published in Issue Year 2022 Volume: 7 Issue: 2

Cite

APA Aytaç, D., & Saraç, T. B. (2022). Economic Policy Uncertainty, Interest Rates And Inflation: Evidence From Selected Latin American Emerging Markets. JOEEP: Journal of Emerging Economies and Policy, 7(2), 578-590.

JOEEP is published as two issues per year June and December and all publication policies and processes are conducted according to the international standards. JOEEP accepts and publishes the research articles in the fields of economics, political economy, fiscal economics, applied economics, business economics, labour economics and econometrics. JOEEP, without depending on any institution or organization, is a non-profit journal that has an International Editorial Board specialist on their fields. All “Publication Process” and “Writing Guidelines” are explained in the related title and it is expected from authors to Show a complete match to the rules. JOEEP is an open Access journal.