IMPACT OF US ECONOMIC POLICY ON MAJOR LATIN AMERICA’S STOCK MARKETS, 2002-2020

US Economic Policy Uncertainty (usepu) represents a risk in which government policies and regulatory frameworks are not clearly defined for the near future. This phenomenon can generate negative effects around the world by delaying the investments of corporations and investors in stock markets, which in turn affects economic activity. This article assesses the impact of the usepu on the main stock exchanges in Latin America (Chile, Brazil, Mexico and Colombia). To do this, a Time-Varying Bayesian Structural Vector Autoregressive model is applied. Data is obtained from Bloomberg for the period 2002-2020. The main empirical results obtained are that a usepu shock initially affects returns negatively and then its effect turns positive, with a peak around three months, for Chile’s ipsa (Índice de Precios Selectivo de Acciones) index, Brazil’s ibov (abbreviated name of ibovespa, Índice da Bolsa de Valores de São Paulo) index and Mexico’s mexbol (Mexican Bolsa) index. The same happens on a smaller scale with Colombia’s colcap (Colombia Capital) index. The shock completely dissipates after two years for all countries. A Time-Varying Granger Causality test corroborates the above results. Finally, the consequences of the usepu for emerging countries with similar characteristics are discussed and several policy recommendations focused on reducing the impact are provided.