The impact of economic and policy uncertainty shocks in Spain

ABSTRACT

The purpose of this research is to quantify the impact of economic uncertainty shocks in Spain by using a structural vector autoregression (SVAR) approach with data from the first quarter of 2001 until the first quarter of 2018. Specifically, we analyze temporary and persistent economic and policy uncertainty shocks. Our results suggest that positive economic and political uncertainty shocks lead to an increase in unemployment and declines in consumption, investment, IBEX 35 index, and GDP. Based on our results, we can conclude that economic and policy uncertainty shocks have a significant negative impact on the Spanish economy.

KEYWORDS:

• Economic uncertainty
• policy uncertainty
• SVAR
• Spain

JEL CLASSIFICATION:

• D81
• E21
• E22

Acknowledgements

We are grateful to Rafael Doménech for his helpful suggestions and the two anonymous referees for their useful recommendations. We are also grateful to the Cañada Blanch Center for its research assistance during the authors’ research visit to the London School of Economics and Political Science.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Detailed information about this index can be found at http://blog.iese.edu/icdm/i3e-2/.

2. Detailed information about this index can be found at http://www.policyuncertainty.com/.

3. We have also estimated SVAR models using a recursive identification method (Cholesky). Figures A1–A4 in the Appendix show the IRFs employed under this approach using two alternative Cholesky orderings.

4. We have decided to use September 2008 as the point of separation between the pre-crisis and post-crisis periods because it is the first month in which very important financial tensions arose with the fall of Lehman Brothers.

5. Data are only available from January 2001 to January 2018.

Additional information

Funding

This work was supported by the Spanish Ministry of Science and Innovation under grant FPU16/03957 (Juan-Francisco Albert) and grant FPU16/04571 (Nerea Gómez-Fernández).