Economic uncertainty in Latin America now hits like a supply shock, not just a financial one

Economic policy uncertainty in Latin America now causes real economic contraction and inflation, not just financial market jitters. This means governments can no longer assume that financial markets will absorb the initial shock of policy changes.

For years, central banks and finance ministries in Latin America could manage economic policy uncertainty as a financial problem. They would watch bond yields and exchange rates. This paper shows that uncertainty now directly hits output and raises prices, like a factory closing or a harvest failing. This forces governments to rethink how they plan policy changes, especially when their economies are already weak.