Economic Policy Uncertainty Research Articles

Exploring the Relationship Between Technological Progress, Human Capital, Political Uncertain, Energy Consumption, and Economic Growth: Evidence from a Panel Data Analysis

AbstractThis study examines the determinants of economic growth by integrating technological progress, human capital, energy consumption, and monetary policy uncertainty in an extended theoretical model. The empirical investigation covers 18 economies from 2009 to 2019 and applies the Bias-Corrected Estimation (BC) and Generalized Method of Moments (GMM) techniques. The findings reveal that while gross capital formation is a significant growth driver, financial development has no meaningful impact. Notably, intermediate education contributes positively to growth, whereas advanced education surprisingly shows a negative effect. Additionally, the results indicate a direct relationship between renewable energy consumption and growth, with oil consumption having a negative impact. Political instability, measured by the Global Economic Policy Uncertainty (GEPU) index, also hinders growth.

The determinants of volatility connectedness of South African equity super sectors

The paper aims to explore the determinants of total volatility connectedness of nine super sectors on the Johannesburg Stock Exchange (JSE) market from 3rd January 2006 to 31st December 2021. These sectors are Automobile and Parts, Chemical, Telecommunication, Technology, Energy, Health, Finance, Insurance, and General Industrials. The paper applied Diebold and Yilmaz connectedness matrix and the time-varying parameter – vector autoregressive (TVP-VAR) model to determine the sectorial total volatility connectedness index (STVCI). After that, the nonlinear autoregressive distributed lag model (NARDL) was used to determine the asymmetric effects and the drivers of STVCI. It was found that the partial sum decomposition of the South African volatility index (SAVI) and Economic Policy Uncertainty Index (EPU) are the key determinants of the STVCI both in the long and short run. However, domestic market return (DMR) shows no significant asymmetric effect on STVCI. The study concluded that SAVI and EPU are the key determinants of volatility connectedness among the JSE super-sectors. The results unveil important implications for sectorial investors and policymakers on potential regulations and stability of the significant determinants of spillover risk.

Forecasting Equity Premium in the Face of Climate Policy Uncertainty

ABSTRACTThis study examines the role of the US climate policy uncertainty (CPU) index in forecasting the equity premium, employing shrinkage methods such as LASSO and elastic net (ENet) to dynamically select predictors from a dataset spanning April 1987 to December 2022. Alongside CPU, other uncertainty predictors like economic policy uncertainty (EPU), geopolitical risk (GPR), and the volatility index (VIX) are considered to assess their complementary roles in out‐of‐sample (OOS) equity premium forecasting. The results reveal that while CPU alone cannot consistently predict the equity premium, it provides crucial complementary information when combined with other predictors, leading to a statistically significant OOS of 1.231%. The relationship between CPU and the equity premium is time varying, with a stronger influence observed during periods of economic downturn or heightened uncertainty, as demonstrated by wavelet coherence analysis. This study also identifies CPU's significant impact on industry‐specific returns, particularly in climate‐sensitive sectors, offering valuable insights for investment strategies and risk management in an era of increasing CPU.

Navigating bank risk-taking under excess liquidity: the moderating role of economic policy uncertainty and lessons from the Global Financial Crisis

Navigating bank risk-taking under excess liquidity: the moderating role of economic policy uncertainty and lessons from the Global Financial Crisis

Heterogeneity Analysis of Economic Policy Uncertainty on Corporate Investment Based on Panel Threshold Regression

As the global landscape evolves rapidly, economic policies must constantly adapt to the volatile economic situation, leading to economic policy uncertainty (EPU). Firms, as microeconomic entities, need to continuously adjust their strategies in response to these changes. Given that corporate investment is one of the most crucial factors in business operations, it is of paramount importance to investigate how the characteristics of corporate investment are influenced by EPU. Using the panel threshold regression method, we delve into the nonlinear impact of EPU on corporate investment. By collecting data from 2000 to 2023 for A-share listed companies in Shanghai and Shenzhen, as well as macroeconomic data, we empirically find that EPU exerts significant and differentiated effects on corporate investment across four dimensions: leverage level, company size, profitability, and growth potential.

Managerial interlocking networks and firm risk spillover: evidence from China

PurposeThis paper examines the effect of managerial interlocking networks (MINs) on firm risk spillover by using a sample of Chinese A-share listed firms.Design/methodology/approachApplying the complex network approach, we build managerial interlocking networks (MINs) and leverage degree centrality to quantify a manager’s network position. To gauge firm risk spillover, we utilize the conditional autoregressive value at risk (CAViaR) model to compute the value-at-risk. Subsequently, we employ ordinary least squares to investigate the influence of MINs on firm risk spillover.FindingsOur research uncovers a direct correlation between a firm risk spillover and the status of network positions within managerial interlocking networks; namely, the more central the position, the greater the risk spillover. This increase is believed to be due to central firms in MINs having greater connectedness and influence. This fosters a similarity in decision-making across different firms through interfirm managerial communication, thus amplifying the risk spillover. Economic policy uncertainty (EPU) and Guanxi culture furtherly intensify the effects of MINs. Additional analysis reveals that the impact of MINs on the firm risk spillover is significantly noticeable in non-state-owned enterprises, while good corporate governance diminishes the risk spillover prompted by MINs.Originality/valueOur findings offer fresh insights into the interfirm risk outcome associated with MINs and extend practical guidelines for attenuating firm risk spillover with a view toward mitigating systemic risk.

Is the Influence of Oil Shocks on Economic Policy Uncertainty Fading?

Anecdotal evidence indicates that the influence of crude oil shocks on US economic performance and, by extension, economic policy uncertainty is in decline. While existing studies present mixed evidence on the relationship between economic policy uncertainty and structural oil shocks, they fail to assess any time variation in this relationship. We examine the temporal nature of the influence of three structural oil shocks, oil supply shocks, global aggregate demand shocks, and shocks due to oil market-specific demand, on categorical economic policy uncertainty indexes from 1986 to 2023. We find that out of three oil shocks, only oil market-specific demand shocks negatively and significantly affect the US policy uncertainty over high-uncertainty regimes, with monetary policy uncertainty being the most influenced. At the same time, the impact of the other two shocks, oil supply shocks and aggregate demand shocks on EPU, is found to be fading. The oil shocks-EPU relationship exhibits regime dependencies with higher impact during the high volatile regime. Also, the role of partisan conflict in influencing the oil shocks-EPU relationship is established specifically in EPU subcategories relating to government expenditures. Hence, this paper uncovers interesting dynamics of the oil shocks-EPU relationship, such as regime dependencies, time-varying relationship, the importance of partisan conflict, and the fading influence of global oil supply shocks and oil shocks due to aggregate demand in the global economy.

Nonlinear impact of economic policy uncertainty on corporate ESG performance: Regional, industrial and managerial perspectives

The relationship between Economic Policy Uncertainty (EPU) and corporate Environmental, Social, and Governance (ESG) practices has garnered significant attention, yet the nature of this relationship remains unclear. While previous studies have explored linear associations, the potential for nonlinear dynamics and the role of contextual factors have been largely overlooked. This study addresses this gap by investigating the nonlinear relationship between EPU and ESG performance, considering the moderating effects of regional marketization, industry competition, and managerial green perception. Using a comprehensive dataset of Chinese listed companies from 2011 to 2022, we employ quantitative methods including baseline regression analysis, robustness tests, and heterogeneity analysis across different stages of the firm lifecycle. Our findings reveal an inverted U-shaped relationship between EPU and ESG performance, indicating that moderate levels of EPU encourage ESG engagement, while excessive uncertainty leads to declined practices. Furthermore, we find that regional marketization, industry competition, and managerial green perception significantly moderate this relationship, with regional factors exerting the strongest influence. These results contribute to the advancement of theoretical frameworks in sustainable finance and offer valuable insights for managers and policymakers navigating the complex interplay between economic uncertainty and corporate sustainability in diverse contexts.

Green bonds and clean energy stocks: Safe havens against global uncertainties? A wavelet quantile-based examination

The renewable energy sector has seen rapid investment growth over the last decade, with Green Bonds (GB) and Clean Energy Stocks (CLE) emerging as critical components of sustainable finance. Using daily data from 2013 to 2023, this study investigates the diverse roles of GB and CLE as potential safe havens under Geopolitical Risks (GEO) and Economic Policy Uncertainty (ECU). Applying an advanced Wavelet Quantile Regression (WQR) approach, we assess their effectiveness across different time horizons and risk conditions. The findings reveal that GB consistently offer stronger protection against economic risks, particularly in the short to mid-term, while CLE are more effective in shielding against geopolitical risks. Over longer periods, GB maintain their safe haven status, while CLE’s protective capabilities diminish. The results also highlight that GB and CLE behave differently across quantiles, with GB showing stability across extreme market conditions, making it a more reliable hedge overall. This study offers valuable policy insights for key stakeholders. Policymakers are encouraged to integrate GB and CLE into sustainable finance strategies, investors can mitigate risk by blending these assets, and portfolio managers should adjust allocations dynamically based on evolving market conditions. The results underscore the importance of green assets as hedges in times of global uncertainty, contributing to the growing literature on sustainable finance.

Economic Policy Uncertainty and Corporate Bond Liquidity

Economic Policy Uncertainty and Corporate Bond Liquidity

Economic Policy Uncertainty, Energy Consumption, Trade Openness and CO2 emissions: evidence from BRICS Countries

Economic Policy Uncertainty, Energy Consumption, Trade Openness and CO2 emissions: evidence from BRICS Countries

The impact of asset specificity on corporate tax avoidance: Do financial constraints and product market power matter?

Our findings reveal that asset specificity significantly enhances corporate tax avoidance, with firms exhibiting lower cash effective tax rates. Firms with higher asset specificity also engage in more aggressive tax avoidance strategies, including tax dodging and long-term tax planning. Additionally, our analysis indicates that the positive impact of asset specificity on tax avoidance is less pronounced in firms with lower ESG performance but is more pronounced in those facing negative demand shocks or operating during periods of economic policy uncertainty. We also find that financial constraints and product market power mediate the relationship between asset specificity and tax avoidance, with financial constraints serving as the dominant economic channel. These findings offer new insights into the factors driving corporate tax avoidance and highlight the complex interplay between asset specificity, financial constraints, product market power, and tax planning strategies.

Does economic policy uncertainty matter to corporate default probability? findings from theoretic analyses and China’s listed firms

Does economic policy uncertainty matter to corporate default probability? findings from theoretic analyses and China’s listed firms

Economic Policy Uncertainty and Enterprise Investment Efficiency

Economic Policy Uncertainty and Enterprise Investment Efficiency

Global Economic Policy Uncertainties and International Oil Price Volatility Under Alternative Market Conditions

This study mainly investigates the predictability prowess of global economic policy uncertainty (GEPU) for oil price volatility under different market episodes. The results clearly show that the GEPU-oil price volatility nexus is episodic in nature. While evidence of mean reverting stance is confirmed across the sectionalized market phases, the long-term impact of GEPU in the nexus holds true for the Covid-19 pandemic, Russia-Ukraine war, and oil price shock episodes.

Does state affiliation create information advantage to financial analysts

PurposeRecent studies have documented the significant influence of investment bank relationships on the forecast accuracy of affiliated analysts. However, the literature primarily focuses on investment bank-firm relationships, such as whether the investment bank has underwriter or lending relationships with firms. Little attention has been paid to the impact of investment bank-state relationships. To fill this gap in the literature, this paper investigates whether investment bank-state relationships create an information advantage for affiliated analysts.Design/methodology/approachWe empirically test the information advantage of state-affiliated analysts using a large sample of analyst forecasts from China spanning the period 2008 to 2020. Specifically, we investigate whether state-affiliated analysts issue more accurate and timely forecasts around macro events. To address endogeneity concerns, we examine instances where analysts move between state-affiliated and non-affiliated banks, as well as changes in the controlling structure of investment banks.FindingsWe find that state-affiliated analysts demonstrate greater accuracy in forecasts driven by macro events, indicating their information advantage. This effect is more pronounced under conditions of heightened economic policy uncertainty and closer ties between investment banks and the state. After transitioning to a non-state-affiliated investment bank, analysts no longer maintain the ability to make superior macro-event-driven forecasts. Conversely, when the investment bank's affiliation changes from non-state to state, financial analysts gain an information advantage following the establishment of new state affiliation. Additionally, state-affiliated analysts tend to issue more assertive forecasts in response to macro events, which are subsequently echoed by their peers. Furthermore, this information advantage is recognized by investors, enhancing stock price informativeness.Originality/valueFirstly, we contribute to the literature on the economic implications of state ownership in financial intermediaries. Secondly, we enrich the existing literature on financial analysts by acknowledging the pivotal role of investment bank relationships in shaping analysts' behaviors. Lastly, unlike existing literature that treats forecasts driven by macroeconomic events and those influenced by firm-specific events as a homogeneous category, this study contributes to the literature by innovatively categorizing analyst forecasts into two distinct types.

Unveiling the Nexus of Consumer Price Index, Economic Policy Uncertainty, Geopolitical Risks, and Gold Prices on Indonesian Sustainable Stock Market Performance

This study contributes to evaluate capital market performances categorized as sustainable stocks in Indonesia. The aim of the proposed model is to examine the impact of the Consumer Price Index, Economic Policy Uncertainty, Geopolitical Risk, and Global Gold Prices on the SRI-KEHATI Index. The study will cover the study period from January 2017 to December 2022. The ARDL approach is employed to see impacts in both long-term and short-term. The findings indicate that in the short run, the variables Consumer Price Index and Geopolitical Risk have a notable positive impact on the SRI-KEHATI Index, while World Gold Prices have a substantial negative impact. However, the variable Economic Policy Uncertainty does not have a significant effect on the SRI-KEHATI Index. In addition, over an extended period of time, the variables of Economic Policy Uncertainty and Geopolitical Risk exhibit a notable and constructive impact on the SRI-KEHATI Index. Compared to the long-term impact of the Consumer Price Index on Gold Prices is negligible.

The impact of supply chain finance on financial constraints of small and medium-sized enterprises and the moderating factors

ABSTRACT Supply chain finance (SCF) has gained significant popularity and has been extensively implemented in practical applications to facilitate cash flow by involving financial institutions. However, there are very few empirical studies on SCF. This study examines whether and how much SCF can alleviate financial constraints of small and medium-sized enterprises (SMEs). Furthermore, we examine the impact of information asymmetry, financial development depth, and economic policy uncertainty on the effectiveness of SCF. These three moderating factors correspond to the influence of firms, local financial development, and national government on SCF effectiveness, respectively. The empirical analysis shows that SCF can alleviate SMEs’ financial constraints significantly, and this effect is more pronounced for firms with higher information disclosure quality and located in financially developed areas. Our findings have important implications for firms and authorities, such as understanding the dynamics of SCF and developing appropriate measures and frameworks to promote the broad adoption and effective utilization of SCF.

Who takes the lead: Synergistic emission reduction effects of proactive government and efficient market in atmospheric pollution mitigation

In environmental protection, government and market forces must work together. However, existing literature often separates the two and discusses their roles independently. Therefore, this study incorporates both the market and government into a unified analytical framework. It redefines government force as environmental regulation and market force as allocation efficiency in environmental protection. The study empirically examines the synergistic emission reduction effects of active government and efficient market on air pollution, using data from 272 prefectural-level cities in China from 2003 to 2019. The results show: (1) Both government and market interventions can significantly reduce air pollution levels, and their combination achieves a synergistic emission reduction effect.(2) Within this synergy, government intervention remains dominant, while the market plays a supportive role. (3) Analyzing the heterogeneous effects under different scenarios reveals that collaboration and mutual monitoring between the government and the market can effectively counteract the adverse effects of economic policy uncertainty and corruption on the environment. Furthermore, when a single entity undertakes environmental protection, it may encounter issues of diminishing effectiveness over time. However, the synergistic effects of government and market cooperation can mitigate these challenges. (4) The synergy exhibits a threshold effect based on the varying strengths of government and market forces. (5) Public participation enhances the synergistic emission reduction effect of government and market, acting as a vital complement to their environmental protection efforts. This study provides new empirical evidence on the synergistic effect of current environmental protection measures in improving air pollution control.

Climate pattern effects on global economic conditions

This study investigates how El Niño–Southern Oscillation (ENSO) climate patterns affect global economic conditions. Prior research suggests that ENSO phases, particularly El Niño, influence economic outcomes, but with limited consensus on their broader macroeconomic impacts. Using a novel monthly dataset from 20 economies, covering 80% of global output from 1999 to 2022, we employ a global augmented vector autoregression with local projections (GAVARLP) model. The empirical findings suggest that El Niño boosts output with minimal inflationary effects, reducing global economic policy uncertainty, while La Niña raises food inflation, which can amplify aggregate inflation as a “second-round” effect, amplifying uncertainty. These findings shed light on the transmission channels of climate shocks and highlight the significant role of ENSO in shaping global economic conditions, emphasizing why climate shocks should be a concern for policy markers.