Economic policy uncertainty, macroeconomic shocks, and systemic risk: Evidence from China

Abstract

This paper used DCC-GARCH to construct systemic risk indicators and principal component analysis to construct macroeconomic shock indicators to analyze the monthly data from January 2007 to June 2022 of 45 financial institutions registered in China. The TVP-VAR-SV model was then used to empirically examine the relationships between economic policy uncertainty, macroeconomic shocks, and systemic financial risks. It was found that there were apparent time-varying relationships between economic policy uncertainty (EPU), macroeconomic shocks (MS), and systemic financial risk (SYS). Further research showed differences in the direction and degree of the interactions between the variables under different time shock backgrounds.