International spill-overs of uncertainty shocks: Evidence from a FAVAR

This paper analyses the international spill-overs of uncertainty shocks originating in the
US. We estimate an open economy, structural factor-augmented vector autoregression
(FAVAR) model that identifies US uncertainty shocks and estimates the impact of these
uncertainty shocks on the US economy, major world economies and a small open
economy, namely New Zealand. The data-rich nature of our model allows us to
investigate different transmission channels from the US to the rest of the world. We find
the confidence channels, measured by the expectations surveys, are particularly
important in the transmission of the uncertainty shock to a small open economy.