Economic risk contagion among major economies: New evidence from EPU spillover analysis in time and frequency domains

• Published in: Physica A Vol. 535; p. 122431
• Main Authors: Bai, Lan, Zhang, Xuhui, Liu, Yuntong, Wang, Qian
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.12.2019
• Subjects: Economic policy uncertainty; Frequency domain; Risk contagion; Spillover analysis; Frequency domain; Economic policy uncertainty; Risk contagion; Spillover analysis
• ISSN: 0378-4371; 1873-2119
• DOI: 10.1016/j.physa.2019.122431

This paper aims to investigate the economic risk contagion among major economies in the world by utilizing an innovative spillover analysis method accompanied with data from economic policy uncertainty (EPU) indices. To obtain more robust conclusions, the risk spillover effects are detected in both time and frequency domains. The empirical results show that, first of all, in terms of time-domain framework, the top six largest economies has strong connectedness in economic risk (uncertainty) and US seems to be both the major risk spillover contributor and receiver among these major economies. While regarding to frequency-domain analysis, most risk spillover effects are observed only in short-term frequency at 1 to 3 months. Secondly, the static net EPU spillover effects indicates that US, in average, is the key spillover transmitter and UK as well as China are the major spillover receivers. Finally, the dynamic rolling-window results confirm that with time-varying domestic and global economic situations, no country is identified as a successive net EPU spillover contributor or receiver across both time and various frequency domains. China, however, is presenting its upward economic strength and outside impacts in global economy system since about 2017. •Economic risk contagion is analyzed in both time and frequency domains.•EPU indices of six major economies are employed as proxies of economic risk.•Both static and time-varying spillover effects are calculated.•US are the major risk spillover contributor and receiver.•Economic risk spillovers are mainly observed in short-term frequency.