Economic Uncertainty Research Articles

The Influence of Interest Rates and Inflation on Asset Allocation Strategies in Investment Portfolios in Indonesia

This study examines the impact of interest rates and inflation during the 2019-2023 period on asset allocation strategies in Indonesia's investment portfolio. Investment decisions are heavily influenced by two macroeconomic components, namely interest rates and inflation. These factors mainly affect how assets comprise a portfolio. In this study, data on Bank Indonesia's benchmark interest rate and the national inflation rate over the past five years are analyzed to see the pattern of change and its impact on asset allocation strategies, which include stocks, bonds, property, and other assets. The results show that rising interest rates significantly encourage people to shift from high-risk assets (e.g. stocks) to safer assets (e.g. bonds and deposits). Meanwhile, high inflation triggers an increased allocation to physical assets such as property and gold as a hedge against declining purchasing power. This research provides insights for investors to adjust their investment portfolios based on macroeconomic dynamics, especially in the face of interest rate volatility and inflation. The findings also highlight the importance of flexibility and diversification in asset allocation strategies to achieve optimal investment objectives amid economic uncertainty. The conclusion of this study confirms the importance of understanding interest rate and inflation dynamics in formulating effective investment strategies in Indonesia. The implications of these findings can be used by investors and policymakers in designing better monetary policies and investment strategies, in order to maintain national economic stability.

Trade as a commerical determinant of health: The health impact of a free trade agreement on Wales

Abstract As a result of the UK’s withdrawal from the European Union (‘Brexit’), the UK can negotiate its own trade agreements for the first time in over 40 years. This includes the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP). Public Health Wales undertook a mixed-method Health Impact Assessment (HIA) to assess the potential impact of the CPTPP on health, well-being and inequalities in Wales. It is only the second ever HIA carried out on a free trade agreement (FTA) globally. A literature review on the potential impact of the CPTPP on health was conducted. Qualitative interviews with cross-sectoral representation, such as the environment, were undertaken alongside the development of a community health and demographic profile. The HIA identified significant potential impacts across health determinants, e.g., employment, agricultural production and health care, as well as impacts on population groups, e.g., those on low incomes. The Investor State Dispute Settlement (ISDS) mechanism, economic uncertainty and loss of regulatory alignment were identified as potential pathways for health impacts to affect the population. The HIA highlighted trade as a key commercial determinant of health. The findings have been beneficial in informing policy and decision-makers to prepare for the implementation of the CPTPP and take action to maximise opportunities and prevent potential negative impacts. Communicating HIA evidence that links trade to health has also led to valuable cross-sector and cross-UK engagement and sparked a “rethinking” of trade through a well-being economy lens where health, well-being and sustainability are primary objectives. This work has demonstrated the value of a HIA approach to FTAs by mobilising a range of evidence through a transparent process, resulting in transferrable learning for others as well providing an entry point for public health to have direct engagement with trade negotiators and those participating in trade discussions. Key messages • Trade agreements are a key commercial determinant of health across health behaviour, policy and economy. • Multiple population groups are affected by trade agreements both positively and negatively.

Assessing the impact of three emission (3E) parameters on environmental quality in Canada: A provincial data analysis using the quantiles via moments approach

ABSTRACT Existing studies rarely examine the simultaneous effects of three emitting indicators (3E) – full emitting non-renewable, non-emitting renewable, and low-emitting nuclear - on three specific greenhouse gases: CO2, CH4, and N2O. We investigate the impact of three energy types on environmental quality, using Canadian data from 1990-2022. It incorporates macroeconomic policies, economic uncertainty, geopolitical risks, and eco-innovation, and employs the quantiles via moments method to explore the evolving relationships among these factors, considering provincial variances. Findings reveal that non-renewable energy sources deteriorate environmental quality by increasing CO2, CH4, and N2O emissions across all quantiles (from q.5 to q.95), while renewable and nuclear energies, along with eco-innovation initiatives, have a beneficial effect by reducing greenhouse gas emissions across all quantiles. Economic policy uncertainty is a contributing factor to greenhouse gas emissions across all quantiles, whereas geopolitical risks primarily impact the middle to upper quantiles (from q.50 to q.95). To counteract the lack of cross-sectional dependence in the quantiles via moments methodology, this paper employs Driscoll and Kraay’s standard errors approach to fortify its findings’ reliability. It concludes with policy suggestions promoting renewable energy and eco-innovation through increased investment, vibrant long-term policies, provincial collaboration, and adoption of green technologies.

Depreciation and Trade Balance: An Exploration of the J-Curve Phenomenon in Indonesia

Research Originality: Global economic uncertainty has increased in recent years, leading to an appreciation of the US dollar relative to most global currencies, including the Indonesian rupiah. The novelty of this study is the inclusion of natural resource commodity price index variables, given the importance of these commodities in Indonesia's balance of trade.Research Objectives: This study aims to examine the effect of rupiah exchange rate depreciation on Indonesia's trade balance.Research Methods: This study uses a Vector Error Correction Model (VECM) to analyze Indonesia's balance of trade from January 2015 to December 2023, examining the potential J-Curve phenomenon resulting from the depreciation of the Indonesian rupiah.Empirical Result: Findings from the impulse response analysis suggest that the J-Curve phenomenon is present in Indonesia's balance of trade as a result of the rupiah's depreciation. The results of this study also confirm the positive effect of increasing natural resource commodity prices on Indonesia's trade balance.Implications: The implication of these findings is that exchange rate depreciation can improve Indonesia's trade balance only when natural resource commodity prices are rising. Conversely, if commodity prices decline, maintaining the stability of the rupiah exchange rate becomes crucial.JEL Classification: F11, F14, F31, Q02

Can digital transformation promote hospitality and tourism firms’ investment? Moderating effect of financing constraints and economic policy uncertainty

ABSTRACT Research on corporate investment is widely acknowledged as essential in the realm of financial management within the hospitality and tourism sector. Drawing on information asymmetry and resource dependency theories, this study examines the effect of digital transformation on hospitality and tourism firm investment and explores how financing constraints and economic policy uncertainty moderate these effects. We utilized firms engaged in tourism, hotel, catering, and transportation, listed on the A-share market of China’s Shanghai and Shenzhen stock exchanges from 2009 to 2022, as our research sample. Our findings indicate that digital transformation enhances investment in hospitality and tourism companies. Furthermore, this positive effect was more pronounced for firms with reduced financing constraints and heightened economic policy uncertainty. These findings reveal ignored tourism and hospitality investment antecedents and enrich academic understanding by expanding firm-specific boundaries. This study provides practical insight into how hospitality and tourism firms can boost investment through digital transformation.

Research on the Impact of Economic Policy Uncertainty and Investor Sentiment on the Growth Enterprise Market Return in China—An Empirical Study Based on TVP-SV-VAR Model

This study employs the economic policy uncertainty index to gauge the level of economic policy uncertainty in China. Utilizing textual data from the growth enterprise market internet community, we construct the growth enterprise market investor sentiment index by applying the deep learning ERNIE (Enhanced Representation through Knowledge Integration) model, thereby capturing investors’ sentiment within the growth enterprise market. The dynamic interplay between economic policy uncertainty, investor sentiment, and returns of the growth enterprise market is scrutinized via the TVP-SV-VAR (time-varying parameter stochastic volatility vector auto-regression) model, and the asymmetric response of different industries’ stock returns within the growth enterprise market to economic policy uncertainty and investor sentiment shock. The findings of this research are that economic policy uncertainty exerts a negative influence on both investor sentiment and returns of the growth enterprise market. While it may trigger a temporary decline in stock prices, the empirical evidence suggests that the impact is of short duration. The influence of investor sentiment on the growth enterprise market returns is characterized by a reversal effect, suggesting that improved sentiment may initially boost stock prices but could lead to a subsequent decline over the long term. The relationship between economic policy uncertainty, investor sentiment, and returns of the growth enterprise market is time-variant, with heightened sensitivity observed during bull markets. Lastly, the effects of economic policy uncertainty and investor sentiment on the returns of different industries within the growth enterprise market are found to be asymmetric. These conclusions contribute to the existing body of literature on the Chinese capital market, offering a deeper understanding of the complex dynamics and the factors influencing market behavior.

Effects of Working Capital Management on Small-Sized Businesses in Competitive Environments with Economic Policy Uncertainty—A Case Study Applied to Chilean Companies

Working capital is a strategic resource that not only enhances financial performance but also ensures the long-term sustainability of organizations, especially SMEs. In the context of evolving economic policies and the challenges of gender equity affecting Chilean companies, this study explores how economic policy risk (EPU) and CEO characteristics influence working capital, which are essential investments for sustainable growth. The analysis covers 12,839 SMEs from 2014 to 2019. Using a fixed-effects panel data model, the findings reveal that firms tend to increase their investment in working capital in response to rising economic policy uncertainty. However, the relationship follows a non-linear inverted U-shaped pattern, which suggests the existence of an investment optimum between working capital and the EPU. Considering the level of competition, companies increase their investment in working capital when the level of competition is higher. Regarding the gender and age of CEOs, it is observed that women invest less in working capital, as do young CEOs. These results underscore the importance of EPU, along with the gender and age of CEOs, as key factors in promoting sustainable working capital management.

The Heterogeneous Impact of Economic and Environmental Policy Uncertainty on the Digital Economy: Fresh Evidence Based on the Bilateral Stochastic Frontier Model

The Heterogeneous Impact of Economic and Environmental Policy Uncertainty on the Digital Economy: Fresh Evidence Based on the Bilateral Stochastic Frontier Model

Heterogeneous Influence of Capital Flight and Economic Policy Uncertainty on Domestic Investment in Nigeria: New Evidence from Quantile Nonlinear ARDL

This study explores the heterogeneous influence of capital flight and economic policy uncertainty (EPU) on domestic investment in Nigeria. The study utilizes the novel quantile-based nonlinear autoregressive distributed lag (QNARDL) estimation procedure to estimate both the sign-based and the size-based asymmetric influence of capital flight and EPU on domestic investment. The investigation’s outcomes are as follows: First, capital flight influences domestic investment negatively, predominantly in the upper quantiles. Second, it demonstrates that country-specific EPU and its global-based variant significantly negatively affect a country’s investment. Third, the study finds that domestic and world policy uncertainty aggravates the suppressing effect of capital flight on domestic investment. Fourth, a robust unidirectional causality from EPU (indigenous and world) to capital flight implies that policy uncertainty enervates the business climate and creates fear of losses among investors, affecting investment negatively. Fifth, the study indicates an increasing rate of devastating influence of EPU on domestic investment, with more pernicious effects at the upper quantile. The implication is that the devastating effect of EPU (whether country-based or world-based) on domestic investment is highly sensitive to its size. The policy recommendations from the main discoveries have been suggested.

SOCIAL MEDIA SENTIMENT AND STOCK MARKET VOLATILITY: EVIDENCE FROM THE US HI-TECH COMPANIES

Purpose: This study aims to investigate the effects of social media sentiment, measured by Twitter-based uncertainty index, on the stock market volatility of the US technology companies. Design/methodology/approach: Methodologically, we employ the quantile regression model. Our findings reveal that the volatility of Amazon, Apple, Google and IBM stocks are sensitive to the variations in twitter-based economic and market uncertainties (i.e., TEU and TMU indexes). Findings: We observe significant influences at both lower and upper quantiles. Thus, for both high and low volatility regimes, the information on twitter-based uncertainty indexes can be used to predict the market volatility of these leading hi-tech companies. Moreover, TEU and TMU indexes exert positive effects on the stock price implied volatility implying that the variance of these technology firms experiences an upward trend as the social media uncertainty rises. Originality/value: While numerous studies have focused on the influence of social media (e.g., Facebook, twitter etc.) on investment strategies, the impact of twitter sentiments on the risk linked to hi-tech firms remains understudied. Hence, investors participating in the technology sectors could use our findings for managing portfolio risk.

The Role of Human Values in the Relationship Between Industry 4.0 and Job Insecurity in an Emerging Economy

ABSTRACTThis study analyses the relationship between Industry 4.0, human values and job insecurity in Colombia against significant technological changes and global economic challenges. It aims to understand how human values mediate the relationship between Industry 4.0's technological advances and the perception of job security in the current era of economic and social uncertainty. Utilising a Likert scale, the study gathered 714 survey responses from employees in medium and large Colombian companies. The study used a multistage multivariate analysis approach, starting with unidimensionality analysis, followed by reliability and validity analysis to measure accuracy. Exploratory factor analysis (EFA) and confirmatory factor analysis (CFA) were subsequently employed to test the underlying factor structures of the data. Finally, structural equation modelling integrated the findings, forming a model that sheds light on the relationships among the studied variables. The analysis revealed strong human values such as commitment, collaboration, tolerance, honesty and loyalty in the workplace. Interestingly, participants had a low perception of job insecurity, indicating a more complex relationship between technological advancements and job security perceptions. This study offers valuable insights into how human values shape the workforce's response to the rapid changes of Industry 4.0, particularly in an emerging economy like Colombia.

Economic policy uncertainty and dividend policy: Insight from private firms

This study examines whether economic policy uncertainty (EPU) is associated with corporate dividend policy. Using a sample of private firms, we find that EPU is negatively related to dividend payouts. Our main findings are robust to endogeneity concerns, omitted variable problems, simultaneity bias, and alternative measures of EPU. Further, we find that firms are less likely to pay dividends when EPU is higher, confirming our main results. We also find that the negative relation between EPU and dividend payouts is stronger for firms with higher leverage, operating cash flows, sales growth, return on assets, and cash flow volatility than their counterparts. In contrast, the negative relation is weaker for firms with higher retained earnings-to-total equity ratios. Our study highlights that issues such as EPU can influence the dividend payout policies of private firms.

Time-Varying Spillover Effects Between Clean and Traditional Energy Under Multiple Uncertainty Risk: Evidence from the U.S. Market

The global energy landscape is undergoing an unprecedented transformation with the rapid development of clean energy and the continued significance of traditional energy creating a complex dynamic relationship. This study employs the TVP-QVAR-DY model to systematically examine the dynamic spillover effects between clean and traditional energy markets in the United States, focusing on the impacts of economic policy uncertainty (EPU) and geopolitical risk (GPR). The findings reveal (1) significant time-varying spillover effects between the two markets, with total spillover effects ranging from 30% to 50%, intensifying during extreme events; (2) increases in EPU and GPR exacerbate uncertainty in energy markets, particularly in the traditional energy sector, with spillover effects from crude oil to natural gas reaching 23.60% and vice versa at 24.30%; and (3) in the short term, the clean energy market is influenced by traditional energy, with spillover effects from oil to clean energy at 5.10%, while in the medium to long term it gradually becomes independent and inversely affects the traditional energy market, contributing 2.94% to oil spillovers. The results indicate that as the global energy transition deepens, the clean energy market is shifting from a risk receiver to a risk contributor. Based on these findings, the study proposes policy recommendations including accelerating energy structure transition, managing macroeconomic uncertainty risks, coordinating domestic and international energy markets, and leveraging market mechanisms.

Ease of Doing Business and Entrepreneurial Growth in the Face of Global Economic Policy Uncertainty

This study investigates the impact of ease of doing business on entrepreneurial growth in Nigeria from 2010 to 2023, particularly in the context of global economic policy uncertainty. Using data from the Global Entrepreneurship Monitor and the World Development Indicator, the study applies an Autoregressive Distributed Lag (ARDL) model to analyze the relationship between ease of doing business factors, such as access to credit, contract enforcement, and regulation, and entrepreneurial activity. The findings show that while improvements in the business environment significantly foster entrepreneurship, economic uncertainty hampers its growth. The study recommends that Nigeria should enhance its business environment and create safety nets to mitigate the adverse effects of global economic uncertainties. These insights are valuable for policymakers aiming to promote entrepreneurship and economic resilience in developing countries.

Economic policy uncertainty and common prosperity within the enterprise: Evidence from the Chinese market.

In the continuous development of the Chinese economy, the desire for common prosperity among the people has become increasingly strong. However, the complex domestic and international situations, along with the economic uncertainties post-pandemic, have introduced significant uncertainties into government economic policies. In the long term, this uncertainty has a profound impact on intra-enterprise common prosperity, affecting society at large. This paper focuses on non-financial listed companies on the Shanghai and Shenzhen stock exchanges from 2011 to 2020, examining the negative effects of economic policy uncertainty on intra-enterprise common prosperity. The results indicate that economic policy uncertainty has a significant adverse impact on intra-enterprise common prosperity, and this impact is more pronounced in state-owned enterprises, those in the growth life cycle, and companies with poor innovation capabilities and limited external support. Companies enhancing social responsibility and overall factor productivity can help mitigate these negative effects. Furthermore, in dynamic features, as the level of intra-enterprise common prosperity increases, the negative impact of economic policy uncertainty gradually diminishes, while the positive effects of overall factor productivity and corporate social responsibility on enterprises become more evident.

Economic Uncertainty and Impact of Governments’ Spending on Economic Growth: An Empirical Study of Emerging Market Economies*

The COVID-19-led economic crisis has rekindled scholarly interest in the relationship between government spending and economic growth. Further, there is an emerging realm of empirical literature that focuses on the dynamics of this relationship during times of uncertainty. Against this backdrop, this study investigates the effect of government expenditure on economic growth during economic uncertainty and the role of economic confidence in the transmission mechanism of policy shocks utilizing a panel generalized method of moments (GMM) framework for 13 select emerging market economies (EMEs). The findings suggest that the beneficial impact of government spending during economic uncertainty is not significantly different from regular times; however, its effectiveness is enhanced during contractionary periods. Government spending, on the other hand, does not have a statistically significant effect during expansionary phases. Furthermore, unanticipated government spending boosts economic confidence, especially during contractionary phases. Governments in EMEs should implement countercyclical fiscal policies selectively to stimulate aggregate demand and facilitate economic recovery, prioritizing targeted spending in confidence-building initiatives and key sectors. Spending in high multiplier sectors during contractionary periods can boost economic activity and speed recovery, fostering stability and growth amidst uncertain economic conditions. JEL Classification E32, H30, H32

The impact of economic policy uncertainty on corporate environmental information disclosure: the moderating role of media attention and financing constraints

Economic policy uncertainty (EPU) is a major source of risk that could affect corporate environmental behaviors. We investigated the impact of EPU on environmental information disclosure by using 15,308 firm-year observations from 2,316 Chinese manufacturing firms between 2010 and 2020. Our study shows that EPU can be an incentive for firms to disclose environmental information. This finding supports the voluntary disclosure theory that firms are prone to disclose more environmental efforts in times of high EPU. Furthermore, the results show that the positive relationship between EPU and corporate environmental information disclosure can be positively moderated by media attention and financing constraints. Firms in competitive industries and heavily polluting industries provided better environmental information disclosure when facing uncertainty. Our results provide implications that managers should emphasize the quality of disclosure and use environmental information disclosure as a key strategy to deal with EPU.

The impact of the Russia-Ukraine conflict on market volatility: stability of Islamic cryptocurrency

Purpose - This research investigates how the Russia-Ukraine conflict affects the volatility of cryptocurrencies, with a specific focus on the comparative stability of Islamic gold-backed cryptocurrencies versus conventional cryptocurrencies, such as Bitcoin.Method - Utilizing the GARCH model, this study examines the risk factors and volatility transmission among cryptocurrencies (Bitcoin and Tether-gold), traditional financial markets (gold and stock markets), and their interrelationships during the conflict period. The study employs the daily closing prices of Bitcoin, Tether-gold, gold, the SP 500, and the Dow Jones Islamic Market Index from February 7, 2020, to November 30, 2023.Result - Bitcoin experienced significant volatility during the conflict, while the Tether-gold remained more stable. Islamic gold-backed cryptocurrencies have proven to be more stable than conventional ones during geopolitical crises.Implication - The findings offer valuable insights for investors seeking safe-haven assets during periods of economic uncertainty. Gold-backed cryptocurrencies present a more stable investment option compared to conventional cryptocurrencies, especially for investors adhering to Shariah principles.Originality - This research highlights the stability of Islamic gold-backed cryptocurrencies during geopolitical events, contributing to the understanding of safe-haven assets and offering practical implications for portfolio diversification and risk management.

Decision-Making Amid Economic Uncertainty: Exploring the Key Considerations of Commercial Property Investors

This study explored the key considerations of commercial property investors acting under conditions of economic uncertainty across the following three dimensions: market fundamentals, institutional, and behavioural factors. Over the past few decades, a series of exogenous shocks to the global economy has impacted property performance, investment volumes, and investor perceptions. Acknowledging that uncertainty further complicates investment decision-making, a mixed-methods research approach was adopted to examine the perspectives of 5 experts and 412 property investors. The findings revealed that, while most investors express negative responses to uncertainty and adopt more cautious attitudes, others are more aggressive and attempt to capitalise on emerging opportunities. Market fundamentals are not the only key consideration; access to information and investors’ behaviour all impact how decisions are made under these conditions. In particular, wealthy and more experienced investors make more comprehensive decisions, considering all three dimensions, while aggressive investors may disregard data in favour of intuition. Behavioural biases such as the bandwagon effect and fear of missing out (FOMO) all influence decisions and are sometimes exacerbated by media narratives. Practically, these considerations underscore the complexity of decision-making under conditions of uncertainty and how different investors attempt to navigate market volatility.

Economic Uncertainty and Monetary Policy Effectiveness: A Comparative Study between High and Low Uncertainty Countries

This study examines the impact of economic uncertainty on monetary policy effectiveness, as measured by inflation, in 21 countries observed during the period stretching from 1997 to 2022. The study uses a Generalized Method of Moments (GMM) model on full, high and low uncertainty countries. Our results indicate that uncertainty has a significant positive impact on inflation. The results also show that central banks have adopted a cautious approach in response to these shocks, and that monetary policy moderates the negative effects of economic uncertainty. Finally, we found similar results for countries with low vs. high economic uncertainty levels. The findings can be worthwhile to sketch proper monetary policy under uncertainty to lessen monetary policy effectiveness. This study suggests that it is important to note that, in times of high economic uncertainty, monetary policy can be effective when a reactive monetary policy acts as an economic stabilizer and inflation controller. Contribution/ Originality: This study is one of the very few studies investigating the relationship between economic uncertainty and monetary policy effectiveness. It does so using the Generalized Method of Moments (GMM) model in high uncertainty versus low uncertainty countries, thus contributing to our understanding of monetary policy effectiveness under uncertainty.Economic uncertainty