Template-Type: ReDIF-Paper 1.0
Author-Name: Ana Aguilar
Author-X-Name-First: Ana
Author-X-Name-Last: Aguilar
Author-Name: Rafael Guerra
Author-X-Name-First: Rafael
Author-X-Name-Last: Guerra
Author-Name: Carola Müller
Author-X-Name-First: Carola
Author-X-Name-Last: Müller
Author-Name: Alexandre Tombini
Author-X-Name-First: Alexandre
Author-X-Name-Last: Tombini
Title: The macro-financial impact of economic policy uncertainty in Latin America
Abstract: This paper investigates the impact of domestic economic policy uncertainty (EPU) on macroeconomic and financial variables in emerging market economies, focusing on Latin America. Using a panel dataset for Brazil, Chile, Colombia and Mexico from 2005 to early 2025, we find that domestic EPU shocks cause significant macroeconomic disruptions, leading to a contraction in output and a rise in inflation, akin to a supply shock. These effects are transmitted through a financial channel in the short term, via higher risk premia, increased equity market volatility and exchange rate depreciations, and through a real channel in the medium term, via declines in growth expectations and consumer and business confidence. Our analysis further reveals that EPU shocks are most damaging when the economy is weak or financial conditions are tight, while stronger economies are better able to absorb such shocks.
Creation-Date: 2026-01
File-URL: https://www.bis.org/publ/work1324.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1324.htm
File-Format: text/html
Number: 1324
Keywords: macroeconomy, uncertainty, economic policy uncertainty, Latin America
Classification-JEL: C33, D80, E23, E31
Handle: RePEc:bis:biswps:1324