Reconstruction and dynamic dependence analysis of global economic policy uncertainty

Abstract

In this paper, we use a generalized dynamic factor model to reconstruct the global economic policy uncertainty index developed by Davis (2016), and we investigate the dynamic dependence structure between global and national economic policy uncertainty using the time-varying copula approach. Based on this novel index, we find that global economic policy uncertainty has overall experienced a "Low-High-Low" trend during the period April 2003 to November 2018, and there are spikes in connection with notable political events and developments around the world. The results also suggest that there generally exists positive dependence between global and national economic policy uncertainty, and the magnitude of dependency in developed countries is much higher than that in developing countries. In addition, the degree of international economic policy incoordination has increased significantly after the 2008-2009 global financial crisis.

Keywords

• global economic policy uncertainty
• generalized dynamic factor model
• time-varying copula
• reconstruction
• dynamic dependence