On the Link between European Policy Uncertainty and Export Earnings of European Countries

Abstract

Since introducing the news-based policy uncertainty measure by Baker et al (2016), the Policy Uncertainty Group and others have constructed different index measures for various countries and regions worldwide. In this paper, we consider the European Policy Uncertainty (EPU) measure, which has experienced the largest jump, as a result of the Russian-Ukraine war, and assess its impact on the export earnings of 44 European countries. Using monthly data and linear as well as nonlinear ARDL approaches, we find that in almost all countries, the uncertainty measure has short-run asymmetric effects on their export earnings. Short-run effects, however, last into the long run only in 16 countries. Given substitution effects, increased uncertainty in Europe has boosted the export earnings of these 16 countries. These 16 are Albania, Armenia, Croatia, Cyprus, Greece, Iceland, Moldova, Montenegro, Netherlands, Russia, Slovenia, Spain, Sweden, Switzerland, Ukraine, and the United Kingdom.