Economic policy uncertainty in the US: Does it matter for Canada?

This paper uses an indicator of economic policy uncertainty recently developed by Baker et al. (2013) to understand the impact of US economic policy uncertainty on Canada's economic activities. To accomplish this I apply a structural vector autoregression model with US and Canadian macroeconomic aggregates, and use short-term restrictions to identify the structural shocks. The analysis shows that a shock (an increase) to US economic policy uncertainty leads to a fall in Canadian output, price and Treasury bill rate. Moreover, the impact of US uncertainty shock on Canadian macroeconomic aggregates is larger than that of Canadian uncertainty shock.