Increase In Economic Policy Uncertainty Research Articles

A Tale of Two Cities: Mainland Chinese Buyers in the Hong Kong Housing Market

Abstract This article examines the impact of mainland Chinese buyers in the Hong Kong housing market, using complete transaction records between 2001 and 2017. We find that mainland buyers pay an average price premium of 1.4% compared with locals. The premiums are estimated to be 3.5% for large-sized luxury units and 1.6% for homes in central locations. The mechanisms that underlie the price premiums include a hedging effect, residential sorting, and information barriers, of which the hedging motive has the strongest impact. Mainland buyers’ price premiums rise significantly when the Chinese currency depreciates or China Economic Policy Uncertainty increases. Our study sheds light on the impact and mechanism of the ““China shock” on the global housing markets.

The Impact of Economic Policy Uncertainty on Enterprise Green Innovation: A Study on the Moderating Effect of Carbon Information Disclosure

In the context of achieving carbon peaking and carbon neutrality, China has introduced a series of policies to encourage enterprises to adopt green innovation behavior. However, enterprises are faced with an uncertain policy environment surrounding green innovation decision-making; the mechanisms that influence these decisions are poorly understood; and the regulatory role of carbon information disclosure quality against the background of the dual carbon goals is unclear. We found that the increase in economic policy uncertainty is not conducive to enterprises’ decision-making on green innovation. However, an increase in the quality of carbon information disclosure can promote green innovation in enterprises. Additionally, the quality of carbon information disclosure plays a moderating role in economic policy uncertainty and corporate green innovation. Enterprises can mitigate the negative impact of economic policy uncertainty on corporate green innovation by ensuring high-quality carbon information disclosure to adapt to national policies and improve the level of innovation.

Economic policy uncertainty, non-financial enterprises' shadow banking activities and stock price crash risk

At present, the structural contradiction between Economic Financialization and the real economy's long-term weakness has become increasingly prominent. As China enters a “new normal” stage of economic growth, the real investment rate drops, non-financial enterprises continuously allocate resources to the shadow banking system. The financial economy becomes increasingly divorced from reality. This leads us to the questions: will the shadow banking behavior of non-financial companies exacerbate the risk of stock price crash risk? How does the increase in economic policy uncertainty affect the relationship between non-financial companies' shadow banking activities and stock price crash risk?This article uses non-financial listed companies' data from 2007 to 2017 and conducts empirical analysis to answer this question. The study finds that companies engaged in high-leverage, high-risk shadow banking business exacerbate stock crash risk. This effect is only pronounced in non-state-owned enterprises and low social trust regions. The increase in the degree of economic policy uncertainty positively impacts the relationship between non-financial companies' shadow banking business and stock price crash risk. The theoretical mechanism is as follows: the rise in economic policy uncertainty amplifies the positive relationship between shadow banking activities of non-financial companies and stock price crashes by increasing bank loans, investors' sensitivity to external information, risk cross-contagion, and inefficient investment mechanisms. Various robustness tests do not change the research conclusion. This paper has important theoretical and policy guidance significance for reviewing the existing diversified shadow banking system and preventing systemic risks.

The Impact of Economic Policy Uncertainty on Regional Total-Factor Energy Productivity in China.

This paper investigates the effect and possible mechanism of implicit macroeconomic policy uncertainty on regional energy productivity in China. This study takes the unexpected output of environmental pollution from energy consumption into account and uses the DEA-SBM method to measure the regional total-factor energy productivity (RTFEP) of prefecture cities in China from 2003 to 2017. Based on the economic policy uncertainty (EPU) index constructed by Baker et al. this paper estimates the effects of EPU on RTFEP and finds that there is a significant negative relationship between them. Specifically, for every unit increase in EPU, RTFEP will decrease by 5.7%. This paper further examines the mechanism of EPU on RTFEP from the perspective of the market and the government and finds that EPU exerts a restraining effect on RTFEP by affecting the consumption structure of the energy market and government intervention in the economy. In addition, the results show that there is heterogeneity in the impact of EPU on RTFEP which varies between resource-based cities at different development stages and different dominant resources. Finally, this paper proposes to cope with the negative impact of EPU on RTFEP by optimizing the energy consumption structure, regulating government investment areas, and transforming the economic development mode.

Is Bitcoin an emerging market? A market efficiency perspective

Abstract Despite recent studies focused on comparing the dynamics of market efficiency between Bitcoin and other traditional assets, there is a lack of knowledge about whether Bitcoin and emerging markets efficiency behave similarly. This paper aims to compare the market efficiency dynamics between Bitcoin and the emerging stock markets. In particular, this study indicates whether the dynamics of Bitcoin market efficiency mimic those of emerging stock markets. Thus, the paper's contribution emerges from the combination of Bitcoin and emerging markets in the field of dynamics of market efficiency. The dynamics of market efficiency are measured using the Hurst exponent in the rolling window. The study uses daily data for the MSCI Emerging Markets Index and the Bitcoin market over the period 2011–2022. Our results show that there is at most a moderate correlation between the dynamics of Bitcoin and emerging stock markets’ efficiency over the entire study period. The strongest correlations occur mainly in periods of high economic policy uncertainty in the largest Bitcoin mining countries. Therefore, the association between Bitcoin market efficiency and emerging stock markets’ efficiency may strengthen with an increase in economic policy uncertainty. These findings may be useful for investors and portfolio managers in constructing better investment strategies.

Economic policy uncertainty and mutual fund risk shifting

This study examines the effect of economic policy uncertainty (EPU) on mutual fund risk shifting. Using Chinese mutual fund data from 2006 to 2020, we find that managers increase risk-shifting activities when uncertainty rises. A one-standard-deviation increase in EPU is associated with a 0.27- to 0.55-standard-deviation increase in risk shifting. Managers’ tendency to shift risk stems from poor performance during high EPU periods. Managers increase the portfolio risk by switching from cash holdings to equities, engaging in sector rotation, and increasing bubble stock holdings.

Firm-level perception of uncertainty and overseas investment: evidence from China's listed firms

PurposeThe purpose of this study is to provide a textual approach to quantify the perception of uncertainty from management side and investigate how firms manage their overseas investment dynamics when perceiving an increase in economic policy uncertainty (EPU).Design/methodology/approachUsing a textual analysis approach, the study evaluates firm-level perception of EPU. Based on the data from China's listed firms between 2007 and 2018, it examines the association between firm-level perception of EPU and overseas investment using probit model and fixed effects regression with robust standard error adjusted for heteroscedasticity and clustered by firm.FindingsThe study finds that the level of EPU perceived by individual firms is heterogeneous. Moreover, it finds that firm-level perception of EPU is positively associated with firms' overseas investment. When perceiving an increase in EPU, firms are more likely to invest abroad and their overseas investment is more diverse. Further analysis shows that the positive association between firm-level perception of EPU and overseas investment is weaker in firms with higher financing cost, investment irreversibility and management incentive but stronger in firms with more intensive industry competition. However, it does not find significant difference in the impact of firm-level perception of EPU on overseas investment of state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). The results are robust to using alternative measures of primary variables and to endogeneity concerns.Research limitations/implicationsFirst, although the data on outward foreign direct investment (OFDI) at the national and provincial levels are comprehensive, the data on OFDI at the firm level are still relatively scarce. As the firm-level OFDI data become available, future study could be extended to OFDI flow. Second, future study could use other information disclosed by firms to evaluate their perception of EPU from host countries and examine the impact of bilateral EPU on overseas investment. Third, by evaluating firm-level perception of uncertainty in terms of a particular type of economic policies, such as fiscal policy, monetary policy, trade policy and foreign investment policy, future study could probe the sources of EPU affecting firms' overseas investment.Practical implicationsFirst, although uncertainty increases the volatility of firms' investment activities, firms can recognize and seize investment opportunities in an uncertain economic environment and make profits through resource integration. Second, as the association between firm-level perception of EPU and overseas investment depends on firm and industry characteristics, firms with higher financing cost, investment irreversibility and management incentive should be more cautious when making overseas investment decisions during uncertainty times. Third, governments should increase the transparency and the stability of their economic policies to help firms plan their investment policies.Originality/valueThe study extends the literature related to EPU measurement by constructing a firm-level perception index of EPU based on firms' annual reports using a textual analysis approach. Moreover, it sheds some light on the mechanism of how firms modulate their overseas investment activities under uncertainty.

An Empirical Study on the Impact of Economic Policy Uncertainty on Earnings Management of Listed Companies

Taking 273 listed companies from 2011 to 2019 as the research sample, we have a total of 2730 balanced panel data. And we uses the Uncertainty Index of China Economic Policy constructed by Baker et al. (2016) as the measure of economic policy uncertainty (EPU). Besides, using the Jones model and Roychowdhury's calculation method respectively, with accrual earnings management (EM) and real earnings management (REM) as the explained variables, the paper constructs a multiple regression model. Using STATA15.1 empirical analysis, it is found that the level of economic policy uncertainty increases, and listed companies reduce accrued earnings management activities and real earnings management activities.

Economic policy uncertainty and shadow banking: Firm-level evidence from China

This paper identifies the causal effect of economic policy uncertainty (EPU) on the shadow banking activities of nonfinancial enterprises (NFEs) in China. Using hand-collected data on corporate shadow banking during the period of 2007–2019, we find that there is a positive effect of EPU on shadow banking activities of NFEs and a one standard deviation increase in EPU is significantly associated with a 0.0690 standard deviation rise of firms’ shadow banking business. Furthermore, the effect is more prominent in state-owned enterprises (SOEs) and in firms with high external financing dependence. Financing constraints and the yield spreads between financial and real investments are the main channels through which EPU affects firms’ shadow banking business. Our findings shed fresh light on the understanding of how uncertainty regarding economic policies affects firm investment decisions and enrich the study of determinants of firm financialization.

Economic policy uncertainty and enterprise investment decision: Evidence from China

We empirically examine the impact of economic policy uncertainty (EPU) on the investment decision of China's high-tech manufacturing industry based on the company's investment structure. There are several findings. First, innovation investment and maintenance investment are mutually exclusive. However, enterprise prefers innovation investment when facing higher EPU. Second, excess return, asset irreversibility and external market demand are three important mechanisms of the impact of EPU on the corporate investment decision. Finally, higher financing constraints weaken the impact of EPU on investment decision. Firms with higher capital intensity tend to reduce both innovation investment and maintenance investment when EPU rises. The research shows that when the EPU increases, enterprises in China's high-tech manufacturing industry are more inclined to choose innovation investment.

The Effect of Economic Policy Uncertainty on Green Technology Innovation: Evidence from China’s Enterprises

In some cases, enterprise fears uncertainty more than the policy itself, and this fear can impede innovation. However, this study finds that uncertainty is the source of enterprise’s innovation. We took Chinese A-share listed companies from 2010 to 2018 as the research sample and studied the impact of economic policy uncertainty (EPU) on green technology innovation (GTI). Based on China’s EPU index and green patent-application data of Chinese-listed enterprises, this study adopted a panel fixed regression model and found that EPU has a slightly promoting effect on GTI of Chinese-listed enterprises. This effect is also affected by enterprise ownership and industry characteristics. Among them, EPU has a stronger promoting effect on GTI activities of state-owned enterprises and high-tech enterprises than common enterprises. In particular, if EPU increases, the GTI of high-polluting enterprises is not as great as the incentive effect of ordinary enterprises. The reasons may be that state-owned enterprises have more implicit capital guarantees, high-tech enterprises have higher innovation motivation, and high-polluting enterprises have stronger dependence on traditional production equipment. These results can provide a reference for the debate on “uncertainty.” The conclusions of this paper contain unique policy implications.

Economic policy uncertainty and corporate investment efficiency: Evidence from China - Based on panel data

This paper studies the impact of economic policy uncertainty on corporate investment efficiency. The study finds that economic policy uncertainty has a significantly positive impact on corporate investment efficiency. In addition, the positive relationship is still robust after conducting a series of robustness checks. Further analyses show that the impact of economic policy uncertainty on corporate investment efficiency is more pronounced in firms that do not employ Big 4 auditors, are non-state-owned, and have fewer analysts. By exploring the economic channel, this study shows that economic policy uncertainty is related to higher information disclosure quality. Firms with higher information disclosure quality tend to improve their corporate investment efficiency when economic policy uncertainty increases. Findings show that the increase in economic policy uncertainty in China's capital market can improve corporate information disclosure quality and further improve corporate investment efficiency.

Economic policy uncertainty and bank systemic risk: A cross-country analysis

We examine the impact of economic policy uncertainty (EPU) on systemic risk. We performed regression analysis of data obtained from a large sample of 889 listed banks in 20 countries using an OLS model with two-way fixed effects. Empirical evidence suggests that banks are likely to contribute more to systemic risk when EPU increases. Then, through two-stage regression, we find that this effect operates through the bank leverage risk and bank asset risk channels. Further analyses reveal that some formal bank regulations (e.g., the regulatory environment) and informal institutions (e.g., national culture) can moderate this effect. In addition, we investigate economic policy uncertainty spillovers among our sample countries to help us understand the systemic risk arising from the cross-border transmission of EPU. We find that approximately 50% of the economic policy uncertainty in the sample countries originates from other countries. Developed countries are net exporters of uncertainty, while developing countries are net importers. Therefore, it is necessary for all countries, especially developing countries, to take appropriate measures to address the spillover effects of economic policy uncertainty in other countries and the resulting systemic risk.

The transmission mechanism analysis of the impact of economic policy uncertainty on household consumption

AbstractEconomic policy uncertainty is proven to have an important effect on household consumption. However, the literature on its transmission mechanism and on comparing the consumption response of urban and rural households, especially in China, is limited. In this paper, we propose two channels through which economic policy uncertainty affects household consumption, the precautionary saving channel and the investment‐employment channel. Then, we use the household survey data (China Health and Nutrition Survey) to explore the heterogeneous effect among urban and rural households. We verify that an increase in economic policy uncertainty can significantly reduce household consumption through both channels. Further, the precautionary saving channel is more important in the urban household sample, while the investment‐employment channel is more pronounced in the rural household sample. In addition, the heterogeneous effect also exists across households in different regions. Our results are robust with consideration of different estimation methods, the lagged effect of the uncertainty, and other characteristics of households.

Impact of Economic Policy Uncertainty on Carbon Emissions: Evidence at China’s City Level

Estimating the impact of economic policy uncertainty (EPU) on carbon emissions is crucial for formulating emission reduction targets and policies. Using the unbalanced panel data of 325 prefecture-level cities in China from 2001 to 2017 and a two-way fixed-effects model, this paper investigates the impact of economic policy uncertainty on city’s carbon emission intensity. We find that one percentage point increase in economic policy uncertainty will make the city’s carbon emission intensity increase by 4.28 percentage points, and by 0.244 tons per ten thousand yuan at an absolute level. The findings imply that policy makers need to consider the potential threat of economic policy uncertainty on carbon peaking and carbon neutrality in China.

An Asymmetric Analysis of the Influence That Economic Policy Uncertainty, Institutional Quality, and Corruption Level Have on India’s Digital Banking Services and Banking Stability

Motivated by the unprecedented high levels of recent economic policy uncertainty, the current study examines the influence of economic policy uncertainty, institutional quality, and corruption level on the Indian banking stability and the growth of digital financial services. Using the Baker et al.’s economic policy uncertainty index and nonlinear autoregressive distribution lag model on the data set of banking variables from 2004 to 2019, we infer the following findings. The unit root and the structural break tests confirm the presence of structural breaks and mixed order of integrations. Besides, the long-run nonlinear autoregressive distribution lag results substantiate a long-run asymmetric relationship between the explanatory variables (economic policy uncertainty, institutional quality, corruption level) and the outcome variables (digital banking services and banking stability). The study reveals that a 1 percent increase in the economic policy uncertainty increases nonperforming loans (proxy to measure banking stability) by 1.48 percent and decreases Z-score (proxy to measure banking stability) by −1.12 percent. Likewise, a 1 percent increase in policy uncertainty reduces the progress of digital financial services by −1.23 percent in India. In addition, the study also depicts a long-run cointegration between the explanatory and the outcome variables. Overall, the study shows significant evidence that policy uncertainty, corruption, and institutional regulation hampers Indian banking stability and digital growth. The study offers several policy implications to understand the adverse effects of economic policy uncertainty on the Indian banking sector.

The impacts of economic policy uncertainties on carbon dioxide emissions of emerging and low-income developing countries: the moderating role of institutional quality

PurposeThis study is aimed to examine the effects of the economic policy uncertainty (EPU) on carbon dioxide (CO2) emissions. It further aimed to investigate the moderating role of institutional quality on the impacts of EPU on CO2 emissions.Design/methodology/approachThe authors apply the two-step system-generalized method of moments (GMM) for 112 emerging economies and low-income developing countries (hereafter, developing countries) for the period 2000–2019.FindingsThe findings reveal that the effects of EPU on CO2 emissions are positive. Specifically, a percent increase in EPU results in a 0.047% increase in CO2 emissions in developing countries. However, the effects of institutional quality on CO2 emissions are negative, certifying that strong institutional quality reduces emissions. Also, the results confirm that the positive effect of EPU on CO2 emissions is weaker in countries with relatively strong institutional quality.Practical implicationsPolicymakers should be more vigilant while designing and implementing economic policies. Also, the government should support firms investing in environment-friendly innovations during high EPU. Besides, developing countries should improve institutional quality to mitigate the effect of EPU on CO2 emissions.Originality/valueThis study is the first in its kind to examine the impacts of EPU on CO2 emissions in developing countries. It also provides a different viewpoint on the EPU–CO2 relationship and reinterprets it through the moderating role of institutional quality.

Economic Policy Uncertainty, Social Development, Political Regimes and Environmental Quality.

This paper aims to examine the influence of Economic Policy Uncertainty (EPU) on environmental performance, as well as the moderating effect of social development and the political regimes in EPU’s influence on environmental performance. To investigate such essential issues, we conducted Generalized Method of Moments (GMM) estimations by utilizing cross-country data covering 137 countries during the period of 2001–2018, according to the Stochastic Impacts by Regression on Population, Affluence and Technology (STIRPAT) model. Our empirical estimations support that EPU negatively affects environmental performance; this idea was still supported when we conducted an empirical analysis by changing the measurements, employing alternative estimations and constructing new samples. Furthermore, not only would the absolute level of EPU bring worse environmental performance, but so would an increase in EPU. Moreover, higher economic performance, globalization and a high quality of governance can help countries to alleviate the adverse environmental effect of EPU. Additionally, EPU’s negative effect on environmental performance is stronger in right-wing countries, autocracies and non-OECD countries, compared to their counterparts. Our study provides substantial policy implications for governments participating in the international treaties of environmental protection, to mitigate environmental degradation.

Economic policy uncertainty and the cost of capital

This paper examines the impact of economic policy uncertainty (EPU) on the cost of capital in China. We find that an increase in EPU results in a significantly higher cost of capital and this impact is mainly through increasing the cost of equity instead of the cost of debt. There is no significant difference between the impact of EPU on state-owned enterprises (SOEs) and the one on private firms, but a stronger impact on large firms than on small firms is found. Further analysis suggests that the stronger impact on large firms occurs only in private firms instead of SOEs. We provide and test several channels through which EPU might affect the cost of capital. Our results suggest that EPU influences the cost of capital through increasing information asymmetry and reducing the quality of internal controls.

The impact of economic policy uncertainty on PM2.5 pollution-evidence from 25 countries.

We conduct theoretical and empirical study on the impact of economic policy uncertainty on PM2.5 pollution. Economic policy uncertainty has important impact on PM2.5 pollution through investment channel and innovation channel. Specifically, according to real option theory, increase in economic policy uncertainty can reduce investment, thereby reducing PM2.5 pollution. However, increase in economic policy uncertainty can hinder corporate’s innovation activities, which in turn make PM2.5 pollution increase. Therefore, the impact of economic policy uncertainty on PM2.5 pollution depends on the combination effect of these two different effects. Furthermore, using 25 countries’ unbalanced panel data and fixed effects estimation methods, we empirically test the impact of economic policy uncertainty on PM2.5 pollution. The results show that, with the increase of economic policy uncertainty, countries’ PM2.5 pollution has significantly decreased. In addition, economic policy uncertainty has heterogeneous effect on countries’ PM2.5 pollution. Compared with countries who have higher R&D input, increase in economic policy uncertainty makes the reduction of PM2.5 pollution in countries with relatively lower R&D input higher. By changing the measurement methods of economic policy uncertainty and PM2.5 pollution indicators, and using 2SLS methods to estimate the models, the conclusions of the paper are robust. Finally, we put forward corresponding policy implications.