The impact of EPU spillovers on the bond market volatility: Global evidence

This paper studies the effect of economic policy uncertainty (EPU) spillovers from other countries on local bond market volatility. Using multivariate quantile model (White et al., 2015), we develop a country-specific EPU spillover measure for 23 economies from 2003 to 2019. We find that EPU spillovers have a significantly positive effect on local bond market volatility. This effect becomes stronger if the spillovers are from developed markets and when the spillovers are measured during financial crises. Recognizing the relation between EPU spillovers and bond volatility can motivate policy makers to closely monitor foreign EPU and take actions to alleviate the detrimental influence when foreign EPU rises.