Economic policy uncertainty and natural resource policy in the United States

Abstract

In households with high uncertainty, consumption is likely to be reduced, credit access is available more easily, and equity market investments are less likely to be made. Economic policy uncertainty for natural resource policy is largely ignored in the existing literature. This paper explores the impacts of economic policy uncertainty on natural resources considering the roles of financial development, inflation and economic growth in the United States from 1985 to 2020. We employed advanced econometric methods in the empirical analysis, including the diagonal VECH MGARCH model and the robust Prais-Winsten AR(1) regression model. Our result suggests that natural resource development is discouraged by economic policy uncertainty. Natural resources have outperformed the broader market over the past year owing to improving demand conditions and inflationary pressures, which have fueled a sustained commodity price. Increasing demand and inflationary pressures have led to a sustained price of commodities and the preservation of natural resources. Because of government policy uncertainties such as limited resources, demographics, climate change, societal expectations, public policies, and regulatory structures, policymakers are advised to encourage sustainable development to maximize long-term wealth. Incoherent policies in different domains may lead to unsustainable practices. Improved policy coherence requires the integration of economic, environmental, and social goals across policy areas.