Global Economic Policy Uncertainty Research Articles

Does global economic and climate policy uncertainty affect private investment? Evidence from sub‐Saharan Africa

AbstractThis study investigates how uncertainty in climate and global economic policies affects private investment in sub‐Saharan Africa (SSA). Using panel data from 41 countries over the period 2000–2022, the study employs a dynamic panel model to estimate the effects of these two types of uncertainty on the private investment‐to‐gross domestic product ratio. The study finds that both global economic policy uncertainty (EPU) and climate policy uncertainty have a negative and significant influence on private investment, implying that higher levels of uncertainty discourage private investors from undertaking long‐term projects in the sub‐region. The study also finds that the effect of uncertainty on climate policy is stronger than that of EPU, suggesting that private investors are more sensitive to the lack of clarity and coherence in the global climate policy framework. The findings are robust to different estimation techniques. The study concludes that reducing policy uncertainty, especially in the area of climate change, is crucial for enhancing private investment and promoting sustainable development in SSA.

The impact of geopolitical risks, financial stress, economic policy uncertainty on African stock markets returns and volatilities: wavelet coherence analysis

PurposeThis study seeks to examine the relationship between macroeconomic shock indicators, namely geopolitical risk (GPR), global economic policy uncertainty (GEPU) and financial stress (FS), and returns as well as volatilities on seven carefully selected stock markets in Africa. Specifically, the study intends to unravel the co-movement and interdependence between the respective macroeconomic shock indicators and each of the stock markets under consideration across time and frequency.Design/methodology/approachThis study employed wavelet coherence approach to examine the strength and stability of the relationships across different time scales and frequency components, thereby providing valuable insights into specific periods and frequency ranges where the relationships are particularly pronounced.FindingsThe study found that GEPU, Financial Stress (FS) and GPR failed to induce significant influence on African stock market returns in the short term (0–4 months band), but tend to intensify in the long-term band (after 6th month). On the contrary, stock market volatilities exhibited strong coherence and interdependence with GEPU, FSI and GPR in the short-term band.Originality/valueThis study happens to be the first of its kind to comprehensively consider how the aforementioned macro-economic shock indicators impact stock markets returns and volatilities over time and frequency. Further, none of the earlier studies has attempted to examine the relationship between macro-economic shocks, stock returns and volatilities in different crisis periods. This study is the first of its kind in to employ data spanning from May 2007 to April 2023, thereby covering notable crisis periods such as global financial crisis (GFC) and the COVID-19 pandemic episodes.

The Impact of Global Economic Policy Uncertainty on Global Grain Prices --Based on the TVP-VAR-SV Model

Grain products are essential for human survival and economies, and their price fluctuations significantly impact global economic stability. Recent frequent uncertain events have made global economic policy uncertainty a major factor in global food price fluctuations. This study choose European debt crisis, the COVID-19 pandemic, and the Russo-Ukrainian war as three typical type of uncertainty event. And used TVP-VAR-SV model to examine the impact of global economic policy uncertainty on the prices of beans, maize, rice, and wheat. The result shows policy uncertainty leads to fluctuating grain prices, with food grains (rice, wheat) and feed grains (beans, maize) reacting differently. And different types of uncertainty events have different effects, with the pandemic having the greatest effect. Finally, the paper suggests strategies for global food security, including improved information communication, policy control, early warning systems, stable economic policies, and supervision of the agricultural futures 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 Household Consumer Confidence: Evidence from Indian Household 
Data

This article aims to analyse how economic policy uncertainty (EPU) affects consumer confidence in India. The study uses unit-level observations on consumer confidence from the Reserve Bank of India’s Consumer Confidence Survey from June 2016 to May 2021. Exploring the variations in consumer confidence across several cities in India, the regression exercise shows how India-specific EPU and global EPU impact consumer confidence. Findings from the study show that EPU has a negative and significant impact on consumers’ perceptions and outlook about the economy. The results also show that the effect of global EPU is stronger, compared to India-specific EPU. A disaggregated analysis is also conducted to analyse the impact of EPU on several consumer confidence indicators, such as the perception and the outlook on household income, spending, employment and general price levels. Contrary to the current literature, this study uses individual-level responses on consumer confidence from survey data and examines the role of EPU on consumer sentiments. Overall, the findings suggest that news-based economic policy-related uncertainty shocks negatively affect households’ sentiments. Moreover, a disaggregated analysis is also conducted for several consumer confidence indicators such as perception and outlook on household income, spending, employment and general price levels. JEL Codes: E66, E71, H31

Econometric Model Using Arbitrage Pricing Theory and Quantile Regression to Estimate the Risk Factors Driving Crude Oil Returns

This work presents a novel approach to determining the risk and return of crude oil stocks by employing Arbitrage Pricing Theory and Quantile Regression. Arbitrage Pricing Theory identifies the risk factors likely to impact crude oil returns. Subsequently, Quantile Regression estimates the relationship between the selected factors and the returns across different distribution quantiles. The West Texas Intermediate (WTI) crude oil price is used in this study as a benchmark for crude oil prices. WTI’s price fluctuations can significantly impact the performance of global crude oil stocks and, subsequently, the global economy. Various statistical measures are used in this study to determine the proposed model's stability. The results show that changes in WTI returns can have varying effects depending on market conditions and levels of volatility. This study emphasizes the influence of structural discontinuities on returns. These are likely generated by changes in the global economy and the unpredictable demand for crude oil during the pandemic. The inclusion of pandemic, geopolitical, and inflation-related explanatory variables adds uniqueness to the study as it considers current global events that can affect crude oil returns. Findings show that the key factors that pose significant risks to returns are industrial production, inflation, the global price of energy, the shape of the yield curve, and global economic policy uncertainty. This implies that while making investment decisions in WTI futures, investors should pay particular attention to these elements.

Global Economic Policy Uncertainty and Islamic Stock Market in Indonesia

The investigation of economic policy uncertainty (EPU) was necessary during financial and trade integration between countries. In this context, there was a spillover effect of global economic policy protections impacting stock markets. Therefore, this research aimed to determine the effect of global policy proxied by the United States, China, and Japan on Islamic stock market in Indonesia. Macroeconomic indicators were also included in the research model and the time series data was obtained from January 2015 to December 2022. In addition, Vector Error Correction Model (VECM) was used as an analytical method in the model. The results showed that Islamic stocks responded positively to global economic policy, exchange rates, and exports to stock index, while inflation reported a negative response.

Global economic policy uncertainty and renewable energy demand: Does environmental policy stringency matter? Evidence from OECD economies

Existing literature recommends the essential role of renewable energy consumption (REC) in achieving environmental sustainability. Although prior works have investigated the significant factors of REC, the effect of green environmental policies remains largely understudied, particularly in OECD countries. Therefore, this study specifically examines the role of environmental policy stringency (EPS) in enhancing (or diminishing) REC in 27 OECD economies between 2000 and 2019. Furthermore, we aim to specify the determinants of REC and investigate whether EPS could help moderate the relationship between global economic policy uncertainty (GEPU) and REC. To accomplish this, we employ both the fixed effects and panel quantile estimation methods. The findings underline that EPS has a positive and significant impact on REC, indicating that stricter green environmental policies lead to encouraging REC. Besides, the findings show that EPS has a beneficial role in lessening the negative effect of GEPU on REC, and its negative effect on REC is more moderated as moves from environments with low EPS to high EPS. The results also underscore that financial market development, FDI, remittances, technological innovation, and economic development positively promote REC whereas CO2 and natural resources rents have a detrimental impact. The findings are significant and a wide range of policy suggestions is recommended to governments, policymakers, and regulators to attain the energy and environmental sustainability targets set out in SDG 7 and SDG 13, respectively.

The Impacts of Global Factors on Islamic Stock Market Returns: Evidence From Islamic Countries

This study investigates the impact of five (5) global factors, namely in this study such as global economic policy uncertainty, geopolitical risks, oil prices, volatility index, and world uncertainty index, on six (6) Islamic stock markets in Australia, Bahrain, Indonesia, Kuwait, Malaysia, and Oman. The monthly data for 13 years from 2009:M3 to 2023:M5 within a time-frequency framework. We used the GARCH model to investigate the impacts of global factors on selected Islamic stock market returns, and the EGARCH model was used to check the robustness of the results. The results provide a few interesting insights. Firstly, it is important to note that GEPU, GPR, OIL, and VIX uncertainty typically exert a significant influence on the majority of Islamic stock returns. Secondly, WUI demonstrates an important relationship in Australia, Bahrain, and Oman only following the outbreak of the COVID-19 pandemic. These results should assist investors in re-evaluating their portfolio to fully maximize the potential of these Islamic stock markets. Policymakers could use these results to design policies to reduce the global factors as well as to investigate the impacts of externally generated uncertainties.

Time Frequency and Co-movements between Global Economic Policy Uncertainty, Precious Metals and Agricultural Prices: A Wavelet Coherence Analysis and Bootstrap Rolling Window Granger Causality

Examining the links between economic uncertainty and precious metals allows us to explore the interconnectedness of various economic factors and their potential impact on markets, investments, and global trade. Precious metals such as gold and silver have historically been used as safe havens during times of economic uncertainty. Understanding how these metals interact with fluctuating economic policies can help assess their role as a safe haven and their importance to investors. Analyzing the links between precious metals, economic uncertainty, and agricultural prices can help policymakers design measures to mitigate negative impacts on the economy and foster financial and food stability. The main objective of this paper is to examine the co-movements between global economic policy uncertainty and each commodity such as oil, precious metals and agricultural prices. We employ two empirical approaches such as wavelet coherence and bootstrap rolling window Granger causality. The dynamic causality according to the bivariate framework between variables is analyzed. We used monthly data during the period span from January 2004 to September 2022. Empirical results indicate the evidence of unidirectional, bidirectional and absence of causality between variables. In addition the co-movements between GEPU and each variable are positive and negative.

Short-term and long-term effects of Chinese and global economic policy uncertainty and geopolitical risks on Chinese tourism

This paper focuses on the short-term and long-term effects of Chinese and global economic policy uncertainties (CNEPU and GEPU) and geopolitical risks (CNGPR and GGPR) on the growth of inbound tourism in China. Using the ARDL and NARDL models as well as a monthly series of Chinese inbound tourism revenue and arrivals, we observed several interesting empirical findings. We find significant effects of CNGPR, GGPR and GEPU on the growth of inbound tourism in Hainan Province and even in China nationwide, while the impact of CNEPU is limited. Among these influencing variables, GEPU always has a significant long-term negative impact on inbound tourism growth (both revenue and arrivals). CNGPR has a significant short-term negative impact on inbound tourism growth in China nationwide; however, it has a significant long-term negative impact on inbound tourism growth in Hainan Province. In addition, the estimation results of the NARDL model further reveal the significant short-term effects of GEPU and GGPR on the growth of inbound tourism arrivals in Hainan Province and even in China nationwide, and these short-term effects are always significantly asymmetric. Specifically, the negative components of GGPR always influence the growth of inbound tourism arrivals more strongly. However, the positive components of GEPU influence inbound tourism arrivals more strongly in Hainan Province, but the negative components of GEPU influence the growth of inbound tourism arrivals more broadly in China.

Dynamic impacts of multidimensional uncertainty on the renminbi exchange rate: Insights from time-varying analysis

Using a time-varying model, this study investigates the dynamic impact of multidimensional uncertainty by considering data from the policy, finance, and energy markets on the renminbi (RMB) exchange rate from 2001 to 2022. It analyzes specific influence patterns during critical economic periods. We find that multiple dimensions of uncertainty influence the RMB exchange rate rapidly and that these influences exhibit notable temporal variation. (1) The dynamic impact of economic policy uncertainty (EPU) on the RMB exchange rate depends not only on the magnitude of EPU but also on the divergence between domestic and global EPU (also called relative uncertainty). When the domestic EPU is lower than its global counterpart, it can still promote RMB appreciation, even at high levels. (2) The dynamic effect of stock market uncertainty depends on the balance between asset substitutability and risk contagion. The dominance of asset substitutability triggers RMB appreciation during periods of stock market uncertainty. (3) The escalation of energy market uncertainty significantly increases the value of the RMB; this effect is especially pronounced after the financial crisis. Against the backdrop of heightened global economic uncertainty and the significant challenge of maintaining exchange rate stability, regulators should focus on the impact of relative uncertainty and prevent excessive spillovers from other markets. Fostering a risk-neutral mindset and effectively leveraging uncertainty is crucial for forming stable market expectations for exchange rates.

Development effects of industrialization, labor force participation and electrification on productive capacity in Africa: A panel data investigation

In our study spanning 2010–2022 across 50 African economies, we investigated the effects of industrialization, labor force participation, and electrification on Africa’s productive capacity. We also examined how electrification moderates the effect of industrialization and labor force participation on productive capacity. We adopted the pooled OLS, the fixed effect estimator, and the dynamic system GMM estimation technique for our analysis. Our findings indicate industrialization, labor force participation, and electrification as potent channels for enhancing Africa's productive capacity. In tandem with Africa’s reality, we find that electrification isn’t moderating the positive impact of industrialization and labor force participation on productivity. Our findings also revealed human capital development, government health expenditure, and institutional quality as pivotal drivers of productive capacity in Africa, while factors like global economic policy uncertainty and natural resource endowment exhibit predominantly negative roles. These results underscore the need for African policymakers and leaders to foster an enabling environment that facilitates industrialization, increased labor force participation, and improved electricity access to promote economic performance and productivity.

Macau hotel industry’s response to global shocks

This study examines the Macau hotel industry’s response to global shocks using vector autoregression analysis. According to the findings, the hotel occupancy rate reacts negatively to a one-standard-deviation shock in global geopolitical risk. However, this reaction decreases after the second period and completely loses its effect after the fourth period. Hotel occupancy rate responds weakly and short term negatively to the shock of global economic policy uncertainty. The hotel industry reacts short term, weakly, and positively to a shock in US monetary policy uncertainty. According to the variance decomposition results, at the end of the tenth term (long-term), 96.25% of the change in hotel occupancy rates is explained by their own dynamics. The rest is 3.00% geopolitical risk, 0.5% US monetary policy uncertainty, and 0.25% economic policy uncertainty.

Freight rate index forecasting with Prophet model based on multi-dimensional significant events

The Baltic Dry Index (BDI) is an essential index to measure international dry bulk shipping freight, which can reflect global economic changes to a certain extent. Accurate forecasting of BDI supports shipping market participants in grasping risks and making scientific decisions. Based on the Prophet model, this paper considers the impact of multi-dimensional significant events related to the shipping industry and conducts BDI forecasting research. Firstly, we simulate the most momentous events in the world in recent years, namely the 2008 Global Financial Crisis and the 2019 New Crown Epidemic, and utilize the Prophet model to decompose the BDI sequence into three parts: trend, seasonality, and momentous event shocks. Secondly, we extensively collect other multi-dimensional significant event uncertainty indexes to establish a “significant event database”. The Maximal Information Coefficient and Boruta methods were employed to extract the uncertainty index particularly correlated with BDI as an exogenous variable for forecasting. Then, we employ the K-Shape method to cluster exogenous variables and explore the combined sense of clustering. Finally, we utilize the Prophet model to forecast BDI in stages. It discusses the influence of exogenous variables and their cluster combinations on the forecasting effect individually and sequentially. Empirical results show that considering the two momentous events of the Financial Crisis and COVID-19 can remarkably improve the accuracy of BDI forecasting. In addition, the study of exogenous variable significance found that during the Financial Crisis, economic policy uncertainty in Europe and the Americas greatly impacted BDI forecasting. During COVID-19, global and developed economic policy uncertainty was noteworthy in the BDI forecasting. The comparative experimental results show the Prophet model has an exemplary forecasting result and strong robustness. It also performs excellently in model generalization and interpretability. This paper proposes a reliable and advanced algorithm for shipping freight rate index forecasting, which has noteworthy reference value for shipping market participants to make investment decisions and risk avoidance.

Global impact of geopolitical oil price uncertainty and associated commodity prices on clean energy stocks

Theoretically, geopolitical risk and policy uncertainties can directly affect energy markets. Since fluctuations in it lead to cost the of clean energy sources as they compete with traditional energy. Regarding this, our study aims to scrutinize the impact of geopolitical oil price uncertainty on clean energy stocks by controlling the influences of economic policy uncertainty, gold, natural gas, and coal prices. For that purpose, the study utilized monthly data from July 2007 to September 2020 and employed a machine learning method, namely kernel-based regularized least squares approach. Empirical analysis reveals that geopolitical oil price uncertainty and coal prices have a nonlinear positive effect on clean energy stock prices. It is also found that the impact of global economic policy uncertainty, gold, and natural gas prices on clean energy stock prices is nonlinear and negative. The implication signifies that clean energy stock prices are hampered by economic policy uncertainty, and gold, and natural gas prices, thus hindering the development of clean energy sources. Similarly, for the robustness of the study, the quantile regression approach and findings reveal similar outcomes to that of the KRLS model. Based on these findings, policy implications that potentially aid renewable energy investments are put forward. The study also guides investors, financial advisors, and portfolio managers for better decision-making in consideration of uncertainties and associated fluctuations in energy markets and commodity prices.

Food security under global economic policy uncertainty: fresh insights from the ocean transportation of food

Food security under global economic policy uncertainty: fresh insights from the ocean transportation of food

The Impact of Economic Policy Uncertainty on the RMB Exchange Rate

Based on the monthly data from July 2005 to August 2021, this paper analyzes the impact of economic policy uncertainty (EPU) on the RMB exchange rate by using VAR model and VECM model in stata16. The results show that there is a two-way interactive causal relationship between the economic policy uncertainty and the fluctuation of the RMB exchange rate between China and the United States. The increased uncertainty of China's economic policy will have a depreciating impact on the RMB exchange rate, and the increased uncertainty of the US economic policy will have an impact on the appreciation of the RMB exchange rate. Through the comparison of the impulse response diagram of the RMB exchange rate from the uncertainty of the economic policy of China and the United States, the impact of China's economic policy uncertainty on the change of the RMB exchange rate is greater than that caused by the uncertainty of the US economic policy, and these conclusions are consistent with the theoretical analysis. The policy implication of this paper is that government departments should strengthen the measurement and monitoring of global EPU, maintain the stability of their own macroeconomy, enhance the transparency and continuity of their own policies, and avoid the adverse impact of large changes in exchange rates on economic development.

What influences the dynamic spillovers of China’s financial market uncertainties?

ABSTRACT Uncertainty serves as a significant source of volatility in financial markets. The aim of this study is to examine the spillover effects of China’s financial market uncertainties (capital market, currency market, foreign exchange (FX) market and derivatives market) and their potential determinants. A large amount of economic and financial data is selected as the sample dataset to construct the financial uncertainty index by the combination of the stochastic volatility model and the Markov chain Monte Carlo algorithm. The TVP-VAR-DY model and the extreme bounds analysis model are also used to conduct spillover and determinant analyses. The results indicate that uncertainties in capital and currency markets primarily act as transmitters of spillover effects. The derivatives market uncertainty mainly serves as a recipient of influence from other markets, whereas the role of FX market uncertainty is relatively unstable. Moreover, international factors such as global economic policy uncertainty and the implied volatility index (VIX) have a more robust impact on spillover relationships among the four financial uncertainties, whereas domestic factors have the greater impact intensity.

Economic Policy Uncertainty and Equity Fund Flows to India: A Bayesian Approach

We compare the impacts of economic policy uncertainty (EPU) and global economic policy uncertainty (GEPU)-related shocks on equity fund flows (EFFs) to India using a Bayesian vector autoregression approach. We find that (a) Indian EPU and GEPU are strongly and negatively related to EFF; (b) EFF are more sensitive to GEPU relative to Indian EPU; (c) evidence of trend-chasing behaviour by fund managers in India; and (d) GEPU is an important factor for forecasting returns on the Bombay Stock Exchange. Taken together, our findings indicate that EPU is important to understanding equity allocation decisions and returns in India. JEL Codes: F21, F39, G11