Foreign Policy Uncertainty Research Articles

Economic policy uncertainty and trade: does export sophistication matter?

ABSTRACT In spite of the recent surge of research interest on the economic effect of policy uncertainties, trade behaviour during times of policy uncertainties is still not fully understood. We use the trade gravity model to examine the effects of economic policy uncertainty (EPU) on the trade of 22 countries over the period 1997–2020, based on the argument that EPU inflates bilateral trade costs. Overall, our results indicate that bilateral trade, exports, and imports are all negatively and significantly affected by both domestic and foreign policy uncertainties. Moreover, we document substantial heterogeneous trade reactions to policy uncertainties across countries. Specifically, in more export-sophisticated countries, our results show that only foreign policy uncertainty has a significant and negative effect on trade; whereas in less export-sophisticated countries, trade is significantly and negatively affected by both domestic and foreign EPU. These findings point to the double vulnerability of less export-sophisticated countries to domestic and foreign policy uncertainties and, to the resiliency of more export-sophisticated countries to domestic policy uncertainties and to their vulnerability to foreign policy uncertainties.

ЭКОНОМИЧЕСКОЕ СОТРУДНИЧЕСТВО РОССИИ И КИТАЯ: СОВРЕМЕННОЕ СОСТОЯНИЕ И ПЕРСПЕКТИВЫ РАЗВИТИЯ

In modern conditions of foreign policy uncertainty, strengthening trade and financial restrictive measures on the part of “unfriendly countries,” the need to deepen and intensify economic cooperation with countries that remain interested in establishing and expanding trade relations with Russia is especially evident. The scale of the economy is the most important factor that makes China the only partner on the path to recovering losses from the departure of Western companies from the Russian market. Russian-Chinese relations, being a bilateral cooperation of major powers, are being built in testing conditions, which are accompanied by risks and challenges - covid-19, stagnation of economic globalization, changes in relations between great powers, imposed sanctions. China continues to develop Chinese-Russian relations even in the face of current external and internal challenges, adhering to the concept of a multi-vector policy and guided, first of all, by its national interests. It is expected that the planned trade turnover of $200 billion by 2024 will be achieved already in the current year (2023), which emphasizes the mutual importance of Russia and China for each other, their close relationship in political terms, which is supported by the growing scale of cooperation in the economy and further growth in the long term of this partnership. The article analyzes the main problems and prospects for the development of economic cooperation between Russia and China, including scientific and technical cooperation as one of the forms of international economic cooperation.

Foreign shareholders, relative foreign policy uncertainty and corporate cash holdings

Studies have shown that foreign investors hedge risks stemming from economic and political uncertainty in the home country through outward investment. This paper studies how foreign investors' home country risk affects their overseas investment and the host country firms' corporate cash holdings. We find that relative foreign EPU, defined as the difference between foreign investors' home country EPU and the host country of investment EPU, negatively impacts the host country firms' cash holdings through their influences on managerial decision-making. This negative relationship arises from firms' precautionary and transaction motives as foreign investors perceive lower corporate risk and better investment opportunities in the host country firms. Good corporate governance is also instrumental in yielding this negative relationship. The reduction in cash holdings due to high relative foreign EPU is more pronounced if foreign investors' home country legal environment is weaker, the two countries are further apart, and there is little trade partnership between them.

Economic Policy Uncertainty and Momentum: International Evidence.

This paper analyzes whether country-specific or foreign Economic Policy Uncertainty (EPU) can explain time-series variation in momentum returns in some international stock markets. First, we empirically tested three EPU index series on the return of Long-Short portfolios of momentum-based strategy in the Brazilian market, a small and open economy, that may be influenced by a large economy like the United States. As proxies for economic policy uncertainty, we used the news-based index developed by Baker, Bloom, and Davis (2016), which one proxy is for Brazil and two is for foreign policy uncertainty, the US, and the global index. Consistent with our theoretical assumptions, we show that local momentum is stronger in months followed by low EPU, both domestic and foreign. Second, our empirical results indicate that foreign EPU has a more important role than the country-specific EPU on the Brazilian momentum strategy. Finally, analyzing 12 other countries we added new evidence that this relationship between local momentum and external EPU is not exclusive to the Brazilian market.

Risk, Uncertainty and Exchange Rate Behavior in South Africa

ABSTRACTThis study investigates the role of market sentiment and foreign policy uncertainty in explaining rand price fluctuations using monthly data from 1995M2 to 2017M8. Empirical results from the pair copula analysis indicate no dependence between foreign policy uncertainties and rand returns when market sentiment is controlled for. Furthermore, change in market sentiment seems to drive fluctuations in rand exchange rate suggesting that exchange rate behavior is indeed unpredictable as market sentiment captures both risk and uncertainty. These results are robust across pre- and post-recent financial crisis periods; hence confirming the ability of pair copula to model extreme events.

(Methodological Approaches to the Construction of a Medium-Term Forecast of the Development of the Financial Sector of the Russian Federation in the Context of Foreign Policy Uncertainty)

Russian Abstract:Объектом исследования в данной работе является российский финансовый рынок: банковская система, НПФ, страховые компании, управляющие компании, денежный рынок, долговой рынок, валютный рынок. Цель работы заключается в разработке методологии для построения среднесрочного прогноза фианансового рынка и собственно в разработке самого прогноза. В результате проведённого исследования предложена следующая методология построения прогноза. Среднесрочный прогноз развития финансового сектора России строится в форме динамической квартальной модели. В данной модели экономика России описана как взаимодействие нескольких типов экономических агентов: Население, Производители, Банки, Центральный Банк, Министерство Финансов (бюджет). Динамика переменных различных агентов в рамках прогноза подчиняется нескольким видам соотношений:Финансовым балансам отдельных агентов (производители, банки, Центральный Банк), Балансам финансовых потоков всех агентов, Институциональным ограничениям производственная функция для производителей, спрос на кредиты со стороны производителей, функция спроса на реальное потребления домохозяйств, спрос на новые кредиты домохозяйств, предложение кредитов домохозяйствами, спрос на расчётные счета в ЦБ со стороны коммерческих банков и т.п.), Равновесию на отдельных рынках (макроэкономический баланс, платёжный баланс). По результатам разработки методики были составлены и проанализированы сценарии развития финансового сектора на 2016-2018 ближайшие годы. Определяющими факторами в 2016-2018 годах для развития финансового сектора окажутся 1) рост спроса на кредитные ресурсы со стороны предприятий, который частично удовлетворяется ресурсами нерезидентов, 2) дефицит бюджета и средства его финансирования. В зависимости от внешнего прогноза ключевых показателей развития реального сектора прогноз (модель) достраивает показатели финансового сектора. Денежная и бюджетная политика государства выбирается в прогнозе такой, чтобы внешний прогноз реального сектора был реализован. English Abstract:The object of the study is the Russian financial market: the banking system, APFs, insurance companies, management companies, money market, debt market, foreign exchange market. The goal of the work is to develop a methodology for building a medium-term forecast of the financial market and in developing the forecast itself. As a result of the conducted research the following methodology of construction of the forecast is offered. The medium-term forecast for the development of Russia's financial sector is built in the form of a dynamic quarterly model. In this model, the Russian economy is described as the interaction of several types of economic agents: Population, Producers, Banks, Central Bank, Ministry of Finance (budget). Dynamics of variables of various agents within the forecast is subject to several types of relationships: Financial balances of individual agents (producers, banks, the Central Bank). The balance of financial flows of all agents, the institutional constraints of the production function for producers, the demand for loans from producers, the demand function for real household consumption, the demand for new household loans, the supply of household loans, the demand for settlement accounts in the Central Bank from commercial banks, Etc.), Equilibrium in certain markets (macroeconomic balance, balance of payments). Based on the results of the development of the methodology, scenarios for the development of the financial sector for 2016-2018 in the coming years were compiled and analyzed. The defining factors in 2016-2018 for the development of the financial sector will be 1) the growth in demand for credit resources from enterprises, which is partially met by the resources of non-residents, 2) the budget deficit and the means of its financing. Depending on the external forecast of key indicators of the real sector development, the forecast (model) is completing the indicators of the financial sector. The monetary and fiscal policy of the state is chosen in the forecast such that the external forecast of the real sector is realized.

Foreign policy uncertainty shocks and US macroeconomic activity: Evidence from China

This paper investigates the spillover effects of economic policy uncertainty (EPU) from China on US real macroeconomic variables in both expansion and recession periods. We use monthly data and estimate a Smooth Transition VAR (STVAR) model over the recent period. We find robust evidence that Chinese uncertainty significantly affects US economic activity during busts while no effect is perceptible during booms. The results also underline that Chinese EPU is a determinant of policy uncertainty, unemployment and industrial production in US.