Economic Uncertainty and its Effects in Bolivia

Abstract

The paper's primary finding reveals that there are three factors related to the level of Bolivian economic uncertainty. These were interpreted as: i) uncertainty of economic expectations; ii) uncertainty of monetary and exchange rate policy; iii) political and social uncertainty. The contribution of each factor was found to account for approximately one-third of the total uncertainty; however, due to the incidence of the searches, the uncertainty factor in the monetary exchange rate policy showed greater contemporaneous synchronization with the general level by using multivariate techniques monthly for the period from January 2004 to December 2020. The estimated index captured negative variations for uncertainty during times of economic boom and growth, and it reflected positive variations of uncertainty in times of economic slowdown, low commodity prices, persistent fiscal and external deficits, as well as drops in net international reserves. Finally, by estimating a structural VAR model (SVAR), a direct relationship was found between global (external) economic uncertainty and domestic (internal) economic uncertainty, which slows national economic activity by -0.65%, interpreted as a retarding factor for economic growth.