Effect Of Economic Policy Uncertainty Research Articles

Unveiling asymmetry impacts of economic policy uncertainty on climate change: fresh insights into African Countries.

This study investigates the influence of economic policy uncertainty on climate change in selected African countries within asymmetric settings. Although previous research has examined the impact of various economic factors on climate change, the asymmetric effects of economic policy uncertainty have not been thoroughly explored, particularly in African countries. We analyze annual data spanning from 1980 to 2017 by utilizing three models: Panel Pooled Mean Group-Autoregressive distributed lag model (ARDL-PMG), Panel Pooled Mean Group-non-linear autoregressive distributed lag model (NARDL-PMG), and Dumitrescu-Hurlin asymmetric causality tests. According to the results of ARDL-PMG estimation, economic policy uncertainty has a detrimental impact on climate change in the long run. However, the NARDL-PMG estimation suggests that a positive shock in economic policy uncertainty negatively affects long-term climate change mitigation. However, a negative shock has a beneficial effect on climate change in the long term. In African nations, positive and negative changes in economic policy uncertainty failed to generate any significant climate change effects in the short run. The results also reveal that both positive and negative shocks in economic policy may cause climate change in a one-way direction. Based on the findings of our study, we recommend that African policymakers implement programs aimed at reducing economic policy uncertainties to help mitigate the effects of climate change.

Exploring the asymmetric influence of economic policy uncertainty on the nonlinear relationship between exchange rate and carbon prices in China

Our objective is to investigate the impact of economic policy uncertainty (EPU) on the risk spillover effect between exchange rates and carbon prices. First, we employ the time-varying parametric vector autoregression (TVP-VAR) method to assess the dynamic nonlinear risk spillover effect between four exchange rates and China's carbon price for the period from September 2, 2013, to April 29, 2022. Our findings reveal a significant time-varying spillover effect between exchange rates and carbon prices. Among them, carbon prices and the EUR/CNY exchange rate predominantly act as risk contributors, and a pronounced correlation is observed among various exchange rates. Furthermore, the magnitude of risk spillover and interdependence intensifies significantly in response to major events. Second, we employ quantile-to-quantile regression (QQR) to examine the impact of EPU on risk spillover. Our results indicate that the influence of EPU on risk spillover exhibits is characterized by marked asymmetry and heterogeneity. At high levels of EPU, EPU has a substantial positive impact on risk spillover. However, when the risk spillover is already elevated, the effect of EPU tends to diminish. Based on these findings, we propose several policy recommendations, including prudent treatment of exchange rate adjustments, fostering stability in carbon prices, and the enactment of robust economic policies.

The tail risk of crude oil Price_Based on EPU and geopolitical risk perspective

This study investigates the conditional prediction of crude oil price growth rates as a function of geopolitical risk (GPR) and economic policy uncertainty (EPU), characterizing the extreme tail risk characteristics. Utilizing monthly data on crude oil futures price growth rates from 1997 Jan to 2022 Dec, we employ Quantile Regression and Growth at Risk models to capture the heterogeneous and asymmetric effects of GPR and EPU across different quantiles of the oil price distribution. The sample period covers major geopolitical events, economic recessions, and the emergence of new energy sources, providing a comprehensive view of the factors influencing crude oil market dynamics.The empirical findings reveal significant asymmetries in the forecast density function of crude oil price growth rates, with periodic right-skewed deviations during financial crises and epidemic situations, and prevalent left-skewed deviations during the remaining sample periods. The impact of EPU on crude oil prices is found to be more pronounced in the short to medium term, while the influence of GPR persists over a longer duration, exacerbating the upside risk of price growth. The study highlights the effectiveness of EPU and GPR in capturing the tail characteristics of crude oil price growth, offering valuable risk identification indicators for policymakers and market participants.Furthermore, the analysis uncovers the heterogeneous effects of EPU and GPR across different quantiles of the oil price distribution. The results indicate that the relationship between these uncertainty measures and crude oil prices varies depending on the market conditions and the specific quantile examined. This finding underscores the importance of considering the entire distribution of crude oil prices rather than focusing solely on the conditional mean.The study contributes to the existing literature by providing a comprehensive examination of the role of geopolitical risk and economic policy uncertainty in driving crude oil price dynamics, with a particular focus on tail risks. The findings have important implications for risk management strategies in the energy sector.By employing advanced econometric techniques and considering a wide range of geopolitical and economic factors, this study offers new insights into the complex and evolving nature of crude oil price dynamics. The results highlight the need for policymakers and market participants to consider the asymmetric and heterogeneous effects of uncertainty measures when assessing the risks and opportunities in the crude oil market.

Asymmetric Effects of Uncertainty and Commodity Markets on Sustainable Stock in Seven Emerging Markets

The increase in global economic policy uncertainty (EPU), volatility or stock market uncertainty (VIX), and geopolitical risk (GPR) has affected gold prices (GD), crude oil prices (WTI), and stock markets, which present challenges for investors. Sustainable stock investments in emerging markets may minimize and diversify investor risk. We applied the non-linear autoregressive distributed lag (NARDL) model to examine the effects of EPU, VIX, GPR, GD, and WTI on sustainable stocks in seven emerging markets (Thailand, Malaysia, Indonesia, Brazil, South Africa, Taiwan, and South Korea) from January 2012 to June 2023. EPU, VIX, GPR, GD, and WTI showed non-linear cointegration with sustainable stocks in seven emerging markets and possessed different asymmetric effects in the short and long run. Change in EPU increases the return of Thailand’s sustainable stock in the long run. The long-run GPR only affects the return of Indonesian sustainable stock. All sustainable stocks are negatively affected by the VIX and positively affected by GD in the short and long run. Additionally, long-run WTI negatively affects the return of Indonesia’s sustainable stocks. Our findings contribute to rational investment decisions on sustainable stocks, including gold and crude oil prices, to hedge the asymmetric effect of uncertainty.

Economic Policy Uncertainty and Innovation: Evidence from China Energy Enterprises

ABSTRACT This research investigates the correlation between economic policy uncertainty and corporate innovation by investigating Chinese energy enterprises yearly during the period from 2001 to 2019. The empirical finding shows a positive effect of economic policy uncertainty on energy corporate innovation (i.e. patent and R&D expenditure), no matter for the traditional energy sample or renewable ones. Next, we find a mediating effect of corporate social responsibility on the nexus between variables, in which higher corporate social responsibility promotes a positive effect on energy corporate innovation. We then examine the moderating effects of government subsidy and financial constraints, presenting that diminishing effects exist in the positive influence of economic policy uncertainty on energy corporate innovation. We also divide the time period into before and after the 2008 global financial crisis and employ a new and more detailed economic policy uncertainty index for robust analysis. Overall, we demonstrate a positive nexus between economic policy uncertainty and energy corporate innovation variables and offer policy implications for governments and energy market participants.

Spillover effects of economic policy uncertainty among the US and BRIC countries: based on time and frequency domain perspectives

ABSTRACT This study examines the static and dynamic spillover effects of economic policy uncertainty (EPU) among US and BRIC countries. We investigate their connectedness both in the time and frequency domains using the spillover index approach and frequency domain decomposition methods. Our results indicate that the countries have significant time-varying characteristic spillover effects, and most of EPU connectedness is generated in the short-term. Furthermore, US domestic emergencies will bring about a sharp increase in spillover indices; in most cases, the US is the major transmitter and receiver of uncertainty spillover while Russia delivers and receives the lowest spillover. These results have implications for policymakers and investors with different time horizons.

Analyzing the effect of economic policy uncertainty in healthcare: the role of working capital management and environmental performance index

Analyzing the effect of economic policy uncertainty in healthcare: the role of working capital management and environmental performance index

Impact of Economic Policy Uncertainty on Global Carbon Emissions

The article aims to examine the potential effect of Economic Policy Uncertainty (EPU) on the mean and variance of carbon (CO2) emissions by employing a novel nonparametric causality-in-quantiles and quantile-on-quantile on the dataset comprising of 17 economies to test our hypothesis. The results of causality-in-quantiles find that EPU offers a significant yet mixed ability to impact the carbon emissions of most economies. These mixed patterns of impact pertain not only to mean and variance but also across regions. The results of quantile-on-quantile reveal that high EPU leads to an augmented level of carbon emissions. This causality may indicate that macroeconomic and institutional factors influence the carbon emission for all analyzed countries. These findings are particularly useful for practitioners, policymakers, academic researchers, and traders in the carbon market as they could promote the realization of carbon reductions targets by maintaining stable economic policies that have tangible ramifications for carbon emissions behavior.

Natural resource development, economic policy uncertainty and urban residents’ consumption in China: a nonlinear ARDL and time-varying parameter vector autoregressive with stochastic volatility approach

AbstractIncreased risks of economic policy uncertainty and overexploitation of natural resources exist in China. At the same time, the growth rate of urban residents’ consumption has generally declined. The paper analyses the role of economic policy uncertainty (EPU) and natural resource exploitation on the urban residents’ consumption in China. Based on the data from the first quarter of 2002 to the third quarter of 2021, the paper uses a nonlinear autoregressive distributed lag model to verify the asymmetric effects. Then the paper constructs a time-varying parameter vector autoregressive model with stochastic volatility term to analyze the nonlinear responses. Impulse response analysis was used to further explain the relationship between the three. The negative impact of rising EPU on urban residents’ consumption is larger than its reduction. Negative shocks to natural resource development increase the urban residents’ consumption. Positive shocks reduce the urban residents’ consumption. There is a time-varying non-linear effect of EPU and natural resource development on urban residents’ consumption in China. The negative impact of EPU on urban consumption has been further exacerbated by major crises such as the financial crisis, COVID-19 and the post-crisis period. The negative impact of natural resource development diminished after the government introduced industrial upgrading policies and environmental regulations. This study provides constructive suggestions for the optimization of economic policies and the improvement of urban consumption. This study also enriches consumer theory and provides new evidence for the resource curse hypothesis.

Does ESG Performance Affect the Enterprise Value of China’s Heavily Polluting Listed Companies?

This paper investigates the effect of environmental, social, and governance (ESG) performance on the enterprise value of heavily polluting listed companies in China’s Shanghai and Shenzhen A-share markets. The study found that ESG performance helps to improve the corporate value of heavily polluting listed companies, and ESG performance has an impact mechanism effect on the corporate value of heavily polluting listed companies through green technology innovation, financing costs, and internal control; the analysis of heterogeneity is conducted from three different perspectives: resource endowment, ownership nature, and overseas background of senior executives. At the same time, the interaction term ESG × EPU is employed to examine the regulatory effect of economic policy uncertainty Non-state-owned enterprises can enhance their enterprise value more effectively by improving their ESG performance based on the research findings. The ESG performance of heavy polluting enterprises in non-resource-based cities has a more obvious role in promoting corporate value; in companies where executives have overseas backgrounds, ESG performance is more conducive to the improvement of corporate value. The empirical evidence derived from the research findings rationalizes the connection between the of ESG performance and enterprise value in industries with high levels of pollution, as well as the pathway of impact.

The Causal Effects of Economic Policy Uncertainty on Changes in Exchange Rates and Volatility: Empirical Evidence from Türkiye

Applying a novel econometric method, nonparametric causality-in-quantiles approach, this paper investigates the causal effects of economic policy uncertainty (EPU) on Turkish changes in exchange rates and volatility with the monthly data spanning from February 1998 to December 2019. This approach of gives an opportunity to investigate the (non)causality in the θ-th quantile only in mean (first moment,i.e., m=1) or variance (second moment,i.e.,m=2) as well as the (non)causality in the mean and variance (m=1 and 2) successively. In sum, this approach calculates volatility by squaring returns. We use EPU indexes of the United States, Australia, European Union, Japan, Canada, and the United Kingdom and their currencies (USD, AUD, EUR, JPY, CAD, GBP, respectively) vis-à-vis Turkish Lira (TRY) and find that the EPUs of Australia, the European Union and Japan affect the returns of the AUD/TRY, EUR/TRY and JPY/TRY exchange rates, respectively. These results show that the EPU indices of these countries can give an idea about the returns and volatility of the relevant Turkish changes in exchange rates. The findings of this paper provide important implications for policymakers, investors, firms, exporters, and importers. Also, some studies can be carried out on the effects of the EPU index that will be created to Türkiye on the Turkish exchange rates or the other Turkish financial assets.

Managing bank liquidity hoarding during uncertain times: The role of board gender diversity

AbstractThis paper examines the effect of executive board gender diversity on the relationship between economic policy uncertainty (EPU) and bank liquidity hoarding (LH). We focus on the Russian banking sector, which, relative to most of the world, has a high share of women on bank executive boards. Using the news‐based EPU index developed by Baker, Bloom, and Davis (2016) and LH measures proposed by Berger, Guedhami, Kim, and Li (2022), we exploit a unique dataset from the Russian banking sector. While higher economic policy uncertainty tends to increase liquidity hoarding, we find that this effect diminishes as the gender diversity of the board increases. We attribute this finding to the moderating influence of gender diversity on stability and overreaction in decision‐making. Additionally, we find that the channel through which board gender diversity affects the impact of economic policy uncertainty on liquidity hoarding takes place via the hoarding of liquid assets. Our findings are robust to the use of alternative measures for economic policy uncertainty and gender diversity and hold after addressing endogeneity concerns. As women are still significantly under‐represented on bank boards in most countries, these results argue for policies to promote gender diversity on bank boards as a means of limiting the detrimental effects of economic policy uncertainty.

Corporate social responsibility and firm-level systematic risk: The moderating effect of economic policy uncertainty

This paper investigates the relationship between corporate social responsibility (CSR) performance, firm-level systematic risk, and variations in economic policy uncertainty (EPU) levels. We examine a dataset of Chinese listed firms, finding that higher CSR performance should reduce firms' systematic risk during periods with relatively high levels of EPU. Furthermore, better satisfaction of primary and secondary stakeholders can help firms reduce systematic risk and increase performance when EPU is high. This evidence supports the implication of stakeholder theory that CSR investment can create substantial relational wealth essential to firms' risk management. Our results also imply that the CSR-systematic risk relationship can be positive when EPU is relatively low. Our findings indicate that the risk-mitigation benefits of CSR are state-contingent and can be better realized during downturns.

Economic policy uncertainty and managerial short-termism

Economic policy uncertainty (EPU) has been on the rise worldwide in recent decades and affects macroeconomic and firm performance severely. This exacerbates short-termism among managers, who are more likely to pursue immediate benefits during times of uncertainty. It is therefore important for policymakers, managers, and investors to understand the effects of EPU. This study examines the relationship between EPU and managerial short-termism using data from 2002 to 2020. Using managers' abnormal discretionary spending cuts as a proxy for managerial short-termism, we find that these spending cuts increase during periods of high EPU and are more pronounced in EPU-sensitive firms. In addition, we show that managers are more likely to meet or slightly beat their earnings targets when EPU is high, suggesting that EPU causes managers' myopic behavior. This study shows how managers react to EPU. Because managerial short-termism undermines companies' long-term value, investors and regulators must pay close attention to the recent increase in EPU globally.

CAN GREEN BONDS DIVERSIFY ECONOMIC AND CLIMATE POLICY UNCERTAINTY?

The severe challenges posed by the environmental crisis and climate change have stimulated the development of the green bonds (GB) market aimed at providing bridging financing for carbon reduction. This investigation employs the wavelet-based quantile-on-quantile method to probe the asymmetric impacts among economic policy uncertainty (EPU), climate policy uncertainty (CPU) and GB. The empirical findings demonstrate that EPU and CPU have time-varying impacts on GB across different time scales. In the short term, the negative effects of EPU and CPU predominantly influence the GB market. In the long term, EPU and CPU have positive effects on the GB market during bullish market conditions but negative effects during bearish market conditions. These outcomes indicate that GB cannot always be deemed a diversifier for EPU and CPU shocks. These outcomes deviate from the Intertemporal Capital Asset Pricing Model (ICAPM) model’s conclusions, which emphasize uncertainties’ positive influence on the GB market. Policymakers can incorporate these findings into policy design to mitigate risks stemming from uncertainty and promote the GB market growth. Furthermore, investors should consider the effects of uncertainty to optimize their investment strategy and obtain higher returns.

Asymmetric Effects of Economic Policy Uncertainty on Food Security in Nigeria

This study investigates the asymmetric effects of economic policy uncertainty (EPU) on food security in Nigeria, utilizing annual time series data from 1970 to 2021. The study used descriptive statistics, unit root tests, the nonlinear autoregressive distributed lag (NARDL) model and its associated Bounds tests to analyze the data. The analysis reveals that adult population, environmental degradation, exchange rate uncertainty (EXRU), financial deepening, food security (FS), government expenditure in agriculture uncertainty (GEAU), inflation, and interest rate uncertainty (INRU) exhibit positive mean values over the period, with varying degrees of volatility. Cointegration tests indicate a long-term relationship between EPU variables (GEAU, INRU, and EXRU) and food security. The study finds that cumulative positive and negative EPU variables have significant effects on food security in the short run. Specifically, negative GEAU, positive INRU, positive and negative EXRU have significant effects in the short run. In the long run, negative GEAU, positive and negative EXRU have significant effects on food security. Additionally, the research highlights asymmetric effects, showing that the influence of GEAU and EXRU on food security differs in the short- and long-run. The study underscores the importance of increased government expenditure on agriculture, control of exchange rate and interest rate uncertainty, and the reduction in economic policy uncertainty to mitigate risks in the agricultural sector and enhance food security. Recommendations include strategies to stabilize exchange rates to safeguard food supply and overall food security.

Economic policy uncertainty and the inhibitory effect of firms' green technology innovation

Given the potential unforeseen impacts of environmental regulation changes on the innovative activities of micro agents, it is crucial to examine the effects of economic policy uncertainty (EPU) on business development. Several studies have shown that uncertainty acts as a hindrance and can hinder business innovation. This study utilizes data from 807 listed companies spanning from 2007 to 2019 and employs a double fixed-effects model to investigate the influence of EPU on enterprises' green technology innovation activities. The results reveal that EPU decreased firms' green technology innovation. Moreover, EPU inhibits corporate green technology innovation by increasing corporate financing constraints. Thus, financing constraints mediate between EPU and enterprises' level of green technology innovation, with increased market competition reducing the inhibiting effect of EPU on innovation. Furthermore, EPU decreases green technology innovation more among nonstate-owned and low-tech businesses than state-owned and high-tech businesses. This paper reveals the intrinsic mechanism of EPU on firms' innovation, clarifies the technological innovation process, and provides insights into governmental environmental governance from the perspective of EPU.

Economic Policy Uncertainty, Political Connections, and Total Factor Productivity in China

Purpose – This paper aims to elucidate the complex relationship between Economic Policy Uncertainty (EPU) and Total Factor Productivity (TFP) in the context of Chinese A-share listed companies, exploring how various factors influenced this relationship from 2008 to 2020. Design/Methodology/Approach – Our research design utilizes a comprehensive dataset from Chinese A-share listed companies across various sectors to explore the impact of Economic Policy Uncertainty (EPU) on Total Factor Productivity (TFP). We analyze a range of factors, including pollution intensity, manufacturing status, market indices, institutional attention, analyst coverage, internal control mechanisms, and bank shareholding. Findings – The findings provide a nuanced understanding of how Economic Policy Uncertainty (EPU) impacts Total Factor Productivity (TFP) across Chinese A-share listed companies. Our analysis reveals that the influence of EPU on TFP is not uniform but varies significantly across different contexts, underscored by a variety of moderating factors. Among these, institutional attention and analyst coverage emerge as critical elements that shape the dynamics between EPU and TFP. Institutional attention, indicating the extent to which firms are monitored by regulatory bodies and investment institutions, plays a pivotal role in mitigating the negative effects of EPU. Research Implications – The findings provide valuable insights for policymakers and industry stakeholders, emphasizing the importance of strategic alignment in managing economic uncertainties. The study contributes to understanding the dynamics of economic policy uncertainties in a complex market like China, helping inform more effective policy and management strategies.

Impact of oil price volatility and economic policy uncertainty on business investment - Insights from the energy sector

This research employs a worldwide sample of 4017 energy sector companies from 1996 to 2022 to examine the effects of economic policy uncertainty (EPU) and oil price uncertainty (OPU) on corporate investment in oil/energy sector and this study analyze how market instability and international economic disasters shape the connection between OPU and business assets. GLM regression with firms-years fixed effects and firm-based clustering indicate that both OPU and EPU had a detrimental influence on corporate investment in energy sector. Generalized linear models provide a universal method for addressing various response modeling issues. It is also revealed that oil-producing nations experience OPU and EPU's negative effects more severely than oil-consuming nations. This paper also demonstrates that the link between corporate investment, OPU and EPU is influenced by nations that produce oil, market volatility, and global financial crises. Strong evidence was found supporting the notion that OPU and EPU had a statistically significant detrimental impact on business assets. The findings of the paper are consistent under a variety of robustness tests and show that the association between OPU and EPU and business assets still holds. The results have significant bearing on the asset strategies that company managers and governments should adopt in light of the volatility of oil prices and EPU and this study provide valuable insights for policymakers who are focused on achieving energy transition, enhancing energy security, and meeting environmental goals such as reducing greenhouse gas emissions.

Effect of Economic Policy Uncertainty on Stock Returns: Analysing the Moderating Role of Government Size

Effect of Economic Policy Uncertainty on Stock Returns: Analysing the Moderating Role of Government Size