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Dynamic effects of internal and external policy uncertainty on consumption: exploring with the perspective of trade shares

Ayesha Zahid (University of Education, Lahore, Pakistan)
Nabila Asghar (Department of Economics, University of Education, Lahore, Pakistan)
Noman Arshed (Department of Economics, University of Education, Lahore, Pakistan)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 17 December 2024

38

Abstract

Purpose

Macroeconomic policy shocks have consistently provoked debate across global economies, given their significant effect on economic growth, particularly by affecting markets and employment through changes in consumer behavior. Policymakers need proper abatement measures for both internal and external uncertainties.

Design/methodology/approach

The present study aims to analyze the impacts of internal and external policy uncertainty on consumption in 22 countries with their trading shares with each other from 2010q1 to 2021q4. In this regard, for external policy shocks the study constructed an index for each country based on their bilateral trade shares a weighted average of internal policy uncertainty.

Findings

By applying the panel ARDL, a U-shaped relationship between consumption and policy shocks is observed. Further, for the county wise assessment of internal and external policy uncertainty on domestic consumption is assessed and it has shown to be negative in most of countries. Gross effects are also revealed where internal policy shocks have more influence than external policy shocks as countries can diversify external risks from their trade portfolio. Other determinates of consumption like income and exchange rate have positive effects, while interest rate and inflation have negative influences.

Originality/value

The outcomes provide internal and external policy insights for consumption stabilization.

Keywords

Citation

Zahid, A., Asghar, N. and Arshed, N. (2024), "Dynamic effects of internal and external policy uncertainty on consumption: exploring with the perspective of trade shares", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-05-2024-0808

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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