Impact of China’s Economic Policy Uncertainty on Inflation Rate

Abstract

Although a decrease in the rate of Chinese inflation happens, it will still be higher than it was before the global financial crisis. The international economy will continue to deteriorate in 2022 due to geopolitical tensions and the slowdown in global economic development and will experience a small recession in 2023. Studies show that the EPU (economic policy uncertainty) index strongly explains large changes in equity markets like the S&P 500 and has an inverse relationship with real macroeconomic variables like employment and economic growth. The rate of inflation might be impacted. Research on the relationship between the index of economic policy uncertainty and the inflation rate is scant. In an effort to assist government agencies in making decisions, this study, which is based on a VAR model, examines the relationship between the index of economic policy uncertainty and the rate of inflation. We find that economic policy uncertainty has a small impact on the inflation rate, but the inflation rate can increase the economic policy uncertainty index.