Effect Of Economic Policy Uncertainty Research Articles

Promoters’ equity pledging, policy uncertainty and firm-level cash holding: evidence from an emerging market

Purpose This paper aims to explore the relationship between economic policy uncertainty (EPU) and promoters’ share pledging activity for real estate and construction firms in India. The author further divides the sample into financially sound and financially constrained firms and re-examines the relationship between EPU and promoters’ share pledging activity for them. Additionally, the author investigates the moderating effect of EPU on firm-level cash holding for pledged firms. Design/methodology/approach The author conducts multiple regression to examine the effect of EPU on the share-pledging activity of a firm on sample data of Indian construction and real estate firms. The financial and pledging data was collected for all listed firms from March 2009 to March 2020 from the Centre for Monitoring Indian Economy. The EPU data was re-estimated using the three-period moving average method. All data used in the study was collected from secondary sources. Findings The author finds that EPU influences pledging activity, and the association between them is opposite for financially constrained and financially sound firms. Also, the author reports that an increase in EPU increases firm-level cash holding for pledged firms, and the interaction between EPU and share pledging is significantly associated with firm-level cash holding. Practical implications The managerial implications of this study are manifold. Managers of financially constrained firms should pay attention to the promoters pledging activity so that in a rising EPU environment, issues of managerial entrenchment can be avoided. Moreover, any further promoters’ share pledging activity under rising EPU conditions may force managers to hoard higher cash and thus reducing investment and profitability. Originality/value This paper presents evidence of relationship between EPU, share pledging activity and firm-level cash holding in an emerging economy. The study also compares the response of financially constrained and financially sound firms for EPU on equity pledging activity and that of equity pledging on firm-level cash holdings.

A time-varying analysis between economic uncertainty and tourism development in Singapore.

Tourism development (TO) is seen as a viable solution to address economic policy uncertainty (EPU) risks. However, previous studies have largely ignored the relationship between short, medium, and long term by decomposing TO and EPU index at different time-frequency scales, especially in Singapore. In this study, the Wavelet tools analysis and a rolling window algorithm are employed to re-visit the causal relationship between EPU, industrial production index (IPI), government revenue (GR), and tourism development (TO) in Singapore from January 2003 to February 2022. The findings revealed the heterogeneous effects of EPU on TO at different time horizons in terms of importance and magnitude over time. A rise in EPU results in a decline in TO at the low frequencies, indicating that EPU has a detrimental effect on TO over the short term. Conversely, in the long term, an increase in TO results in a decrease in EPU. Furthermore, the outcome also indicated that there is a uni-directional causality running from TO to EPU, GR and IPI. Expressly, we confirm that the negative co-movement is more pronounced in the aftermath of the COVID-19 crisis, particularly for EPU, and GR at low-medium frequencies throughout the research period. The findings provide tourism policymakers with insight to develop strategic plans for tourism development that consider the effects of economic policy uncertainty. By understanding how uncertainty impacts tourism, governments can tailor development strategies to mitigate risks and capitalize on opportunities.

Economic Policy Uncertainty and Liquidity Hoarding: Econometric Analysis for Indian Banks

The present study investigates the impact of economic policy uncertainty (EPU) at the national and global levels on a comprehensive measure of bank intermediation, that is, liquidity hoarding (LH) of Indian banks during the 2005 to 2020 period. The findings of the Driscoll–Kraay non-parametric estimator show that Indian banks tend to hoard liquidity in times of economic uncertainty. As per the spillover effects, banks having higher peer LH tend to hoard more liquidity during times of uncertainty compared to lower peer-hoarding banks. Furthermore, the heterogeneity analysis documents that the magnitude of EPU is more destructive for bigger banks, banks with lesser capital bases and liquidity, higher credit risk and public sector banks. Our sensitivity analysis reveals that greater LH is caused by the balance sheet and bank lending channels of credit channel theory. Finally, the study shows that it is imperative to cultivate the growth of financial markets and institutions that can adjust to evolving economic circumstances to lessen the negative effects of EPU.

Navigating sustainability in the US: A comprehensive analysis of green energy, eco-innovation, and economic policy uncertainty on sectoral CO2 emissions

The United States is the world's second-largest polluter, generating 4.7 billion metric tons of CO2 in 2020. To combat it, the US is targeting a precise goal of 50–52 percent decrease in net CO2 emissions from 2005 levels by 2030. Hence, it is vital to determine the critical factors contributing to Sustainable Development Goals (SDGs). With this motivation, this study examines dynamic link between green energy transition, eco-innovation, economic policy uncertainty, energy use, economic growth, and sectoral CO2 emissions (SCO2) in the United States from 1980 to 2020 by using novel Quantile-On-Quantile Regression (QQR) and Granger causality in quantile approaches. The results show that the quantiles of the green energy transition are positively related to all SCO2 quantiles. While eco-innovation and SCO2 are marginally favorable in the lower to higher quantiles, positive slope coefficients showcase the effect of economic policy uncertainty on SCO2 in the 0.2–0.95 quantiles. Similarly, SCO2 and the energy use showed positive and negative results across quantiles, whereas QQR slope coefficients between SCO2 and economic growth are positive and negative throughout the quantiles. Suggests that investment in green energy and eco-innovation also reduces economic policy uncertainty by delivering energy for all sectors is vital if SDG-7 is executed by 2030.

The Impacts of Financial Market, Trade and Economic Policy Uncertainties on the Import Performance of Advanced Economies

This study aims to examine the long-term and short-term diverse effects of economic policy uncertainty, trade policy uncertainty, and financial market uncertainties on the import performance of advanced economies. It employs the Pooled mean group autoregressive distributed lag (PMG/ARDL) method for the panel of 27 advanced economies using quarterly data from the first quarter of 1996 to the fourth quarter of 2020. The study's results reveal that local and global economic and trade policy uncertainties have significant adverse long-term effects on the import performance of advanced economies. Besides, financial market uncertainties negatively impact advanced economies’ imports in the long run. Nonetheless, the results imply that domestic economic and trade policy uncertainties positively affect imports in the short run. Moreover, the Dumitrescu-Hurlin (D-H) panel causality test indicated that bidirectional causality exists between financial market and trade policy uncertainty indicators and imports. However, unidirectional causality exists between economic policy indicators and imports. The results are consistent across different sensitivity analyses. Based on these findings, we propose policy implications to control economic, trade and financial market uncertainties and thereby alleviating their impact on the import performance of advanced economies.

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.

Economic policy uncertainty and financial system efficiency

Economic policy uncertainty (EPU) adversely affects financial system functioning with potentially critical repercussions for economies and corporations worldwide. Financial system efficiency (FSE) has a vital influence on fostering optimal economic growth and development; however, the impact of EPU on FSE remains under-explored. This study investigates the effect of EPU on FSE along with its components financial institution efficiency (FIE) and financial market efficiency (FME). Using data from 22 countries over a 20-year period (2002–2021), our analysis reveals a significant negative effect of EPU on FSE, FIE and FME. Notably, our split-sample analysis highlights the accentuated adverse effects of EPU in high-EPU regimes, emphasising the importance of vigilance during periods of elevated policy uncertainty. We conduct a series of sensitivity tests, including alternative measures of EPU, FSE, FIE and FME, and apply two-stage least squares and two-step dynamic system generalised method of moments estimators and introduce additional control variables. These tests consistently reaffirm the core conclusions of our study. Finally, we discuss the implications of our findings for policymakers.

Economic policy uncertainty and enterprise export resilience in China: Does the digital economy matter?

In the new era of international trade, escalating uncertainty and the swift development of the digital economy stand out as two pivotal transformations. These phenomena individually exert significant influences on enterprises' exports; however, their combined effects on export resilience remain underexplored. Hence, drawing on existing theories, this paper analyzes the weakening effect of economic policy uncertainty on export resilience and explores the influence of regional digital economic development on this attenuation effect. Furthermore, empirical tests are conducted using micro-level data from China. The study findings reveal: (1) Economic policy uncertainty weakens firms' export resilience by increasing transaction costs; (2) Digital economic development mitigates this weakening effect by reducing transaction costs, with a more pronounced effect observed among highly efficient firms. The findings suggest that amid escalating uncertainty, vigorously promoting digital economic development holds profound policy significance for the high-quality development of international trade.

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.

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.

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.

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

The Moderating Effect of Economic Policy Uncertainty on the Relationship Between Working Capital Management and Profitability: Evidence from UK Non-Financial Firms

Uncertainty in economic policy is one of many factors that can have an impact on the relationship between working capital and profitability. The corporate sector places a higher priority on working capital management that employs its working capital resources to have an advantage over rivals. The objective of our study is to determine how economic policy uncertainty (EPU) index for UK, as measured based on newspaper coverage frequency, affects the relationship between working capital management (CCC), return on operating assets, and other profitability measures across several businesses listed on the UK stock exchange for the years 2006 to 2021. To analyze the data for 199 UK manufacturing companies, we applied the Fixed Effect Method, Random Effect Method, and two-stage Generalized Method of Moments (GMM) to tackle the endogeneity problem and report robust findings. The findings of the study revealed that EPU statistically significantly affected the relationship between CCC and profitability. When uncertainty is high, companies may be hesitant to make investments or develop new products, which can lead to a reduction in working capital and lower profitability. Companies that can effectively manage their working capital in the face of uncertainty may be better positioned to maintain their profitability over the long term. This study can provide valuable insights for both companies and investors, helping to improve financial performance and enhance strategic decision-making regarding their working capital management policies in the face of economic policy uncertainty.

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

Increased 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.

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.