Global Economic Policy Uncertainty Research Articles

Are the global economic policy uncertainties blocking the export flows of emerging markets? A heterogeneous panel SVAR analysis

Purpose – This paper examines the effect of global economic policy uncertainty (EPU) on emerging markets (EMs) export flows. Methods – This paper uses a structural panel vector autoregression modeling approach to capture country interdependencies and the likelihood that EMs’ responses are heterogeneous and dynamic. An unbalanced monthly panel data from 2003:01 to 2019:12 is used to estimate impulse responses and variance decompositions not only for the entire panel data but also for each EM. Findings – The results show that global EPU has a persistent and negative effect on exports, while foreign income and the exchange rate increase export volumes in EMs. Given the different responses of EMs to uncertainty shocks, the second-stage regression estimates suggest that greater sectoral export diversification in an EM can potentially reduce the unfavorable impact of global EPU on their export flows. Meanwhile, the higher technology content of exports leads to a multiplication of global EPU transmissions. Implication – These findings advance the literature by highlighting the importance of accounting for the transmission effect of global EPU in EMs by considering country heterogeneity. Originality – This is the sole paper examining the factors that mitigate or amplify GEPU impacts on export flows by estimating second-step ordinary least square equations.

Cross-listing flows under uncertainty: an international perspective

ABSTRACT The impact of policy uncertainty on corporate decisions and strategies continues to receive significant interest in recent discussions. As a contribution, this study examines how economic policy uncertainty (EPU) in the domestic and global markets impacts corporate cross-listing decisions. To this end, we employ firm and country-level data from 1990 to 2016 from 13 countries. We implement a Granger Causality, Quantile on Quantile Regression (QQR), and Wavelet Coherence approaches and show that monthly local and global EPU influence the cross-listing decisions of firms, with stronger influence for firms from smaller domestic markets. We suggest that firms from smaller domestic markets seek more cross-listing in the face of high local EPU and reduce or avoid cross-listing during high global EPU periods. Our findings suggest that policy transparency could have important implications for current and future corporate decisions.

Commonality in BRICS stock markets’ reaction to global economic policy uncertainty: Evidence from a panel GARCH model with cross sectional dependence

The rapid growth of BRICS has increasingly integrated their markets into the global economy. Thus, making their financial markets more vulnerable to external shocks. This study examines BRICS stock markets’ response to global economic policy uncertainty using a panel GARCH model. The results show that global economic policy uncertainty significantly raises volatility with homogeneous response across the markets. The findings also suggests that COVID-19 has amplified the adverse impact of the uncertainties on prices and volatility. One major implication of the findings is that the BRICS can develop a joint policy for mitigating policy uncertainties spillovers.

The Effect of Economic Policy Uncertainty on Foreign Direct Investment in the Era of Global Value Chain: Evidence from the Asian Countries

The global value chain has promoted foreign direct investments in emerging markets. Not only resources but also public policies can affect the inflows or outflows of foreign direct investments (FDI). This study investigates the effect of economic policy uncertainty on net foreign direct investment inflows in 48 Asian countries. We use the panel dataset from different sources from 1995 to 2020. Our core dependent variable is net foreign direct investment inflows, and the explanatory variable is economic policy uncertainty. The study’s control variables include trade, GDP per capita, GDP growth, population, financial development, inflation, and employment. We use the generalized system method of moment (SYS_GMM). Furthermore, the robustness of our empirical results is checked by using the different proxy variables of policy uncertainty. Our results confirm the negative effect of policy uncertainty on foreign direct investment inflows in 48 Asian countries. Our results show that foreign investment inflows are more sensitive than domestic investment. The influence of domestic and global uncertainty on inward FDI is greater than domestic investment. Furthermore, the interaction effect of financial development (FD) shows that FD does not affect mitigation of the negative impact of global economic policy uncertainty on foreign investment inflow. In contrast, FD mitigates the adverse effects of domestic policy uncertainty on foreign and domestic investment. The findings imply that policies need to be attractive, effective, and transparent to woo FDI to the emerging markets.

A comparative analysis of cryptocurrency returns and economic policy uncertainty pre- and post-Covid-19

This study analyzes the impact of economic policy uncertainty (EPU) on cryptocurrency returns for a sample of 100 highly capitalized cryptocurrencies from January 2016 to May 2021. The results of the panel data analysis and quantile regression show that increases in global EPU have a positive impact on cryptocurrency returns for lower cryptocurrency returns quantiles and an adverse impact for upper quantiles. In line with the existing literature, the Covid-19 pandemic resulted in higher returns for cryptocurrencies. Inclusion of a Covid-19 dummy in the models strengthened the impact of EPU on cryptocurrency returns. Furthermore, the relationship between the change in EPU and cryptocurrency returns was direct in the pre-Covid-19 period but inverse in the post-Covid-19 period. These results imply that cryptocurrencies act more like traditional financial assets in the post-Covid-19 era.

Global economic uncertainty and the Chinese stock market: Assessing the impacts of global indicators

We comparatively assess the influence of global economic uncertainty measures on Chinese stock market volatility. Using a model based on generalized autoregressive conditional heteroskedasticity and mixed-data sampling, the results show that the global economic policy uncertainty index, the geopolitical risk index, and the global economic condition index all significantly influence the long-term volatility of China’s equity market. We highlight which of these measures has the most explanatory power under differing contexts. As uncertainty measures have wide applicability, investors, policymakers, and academicians will be quite interested in our results.

Time-varying connectedness between global economic policy uncertainty and regional real estate markets: evidence from TVP-VAR extended joint connectedness approach

PurposeThe real estate markets may be significantly influenced by the uncertainty in global economic policy. This paper aims to evaluate the time-varying connectedness between global economic policy uncertainty and regional real estate markets to understand how regional real estate markets and uncertainty in global economic policy are related throughout time.Design/methodology/approachThe current study includes the monthly data from April 2007 to August 2022 of major regions (i.e. Asia Pacific, Europe, Africa, North America and Latin America). Moreover, the authors use the time-varying parameter vector auto-regression (TVP-VAR) approach for the analysis.FindingsThe finding revealed a significant level of connectedness among global economic policy uncertainty and selected regional real estate markets. The result highlights more than 80% connectivity between the two variables, which makes the current study valuable. Furthermore, results determine Africa and North America are the shock transmitters; thus, they are considered safe-haven for investors to invest in these markets.Originality/valueThe main novelty is that this research highlights the time-varying connectedness between global economic policy uncertainty and five regional real estate markets (Africa, Asian Pacific, Europe, Latin America and North America) using TVP-VAR. Furthermore, the authors used the standard and poor daily real estate investment trust (REIT) indices for the selected REIT markets. Finally, this research suggests practical implications for real estate investors, property developers, stakeholders, policymakers and managers to revise their current policies to maintain the real estate market stability during economic and political uncertainty or in other uncertain situations.

Impact of economic policy uncertainty on the volatility of China's emission trading scheme pilots

This paper aims to investigate the impact of the economic policy uncertainty (EPU) on the volatility of China's emission trading scheme (ETS) pilots. Based on the GARCH-MIDAS model, we proxy EPU using two domestic EPU indices and two global EPU indices and explore their impacts on the volatility of three representative ETSs, Hubei, Guangdong, and Beijing ETS pilots in China from 2014 to 2020. Our findings are threefold. Firstly, the effects on the volatility differ significantly across the ETS pilots and EPU indices. When the weighted value of the growth rate of EPU increases by 0.01 unit, the long-term volatility of Hubei and Beijing ETSs rises by 9.371%–28.777% and 1.629%–5.444%, respectively. For Guangdong, the volatility increases by 11.926%–22.713% when the domestic EPU rises and decreases by 38.302%–59.063% when the global EPU rises. Secondly, economic policy events affect the volatility of ETS pilots by adjusting industries' production, and such influence is alleviated by stabilization mechanisms of the carbon market. Finally, the GARCH-MIDAS model incorporating EPU indices has superior out-of-sample prediction ability in the Hubei and Beijing ETS. This study provides important policy implications for government to stabilize the volatility of ETS and a reliable method for investors to construct portfolios.

Asymmetric impact of economic policy uncertainty on cryptocurrency market: Evidence from NARDL approach

The study examines the relationship between cryptocurrency market and economic policy uncertainty (EPU) by concentrating on the top five cryptocurrencies assessed by market capitalization. We investigate long and short-run effects of global EPU on the returns of Bitcoin, Ethereum, Tether, Binance coin and Ripple, along with ascertaining asymmetries, through the NARDL (Non-Linear Autoregressive Distributed Lag) model, for the period ranging from September 2017 to August 2022. In the long run, except for Tether, all other cryptocurrencies are negatively affected by EPU, challenging the safe hedge properties of cryptocurrencies. However, Bitcoin, Ethereum, Binance coin and Ripple display positive relations with growing EPU in short run, reflecting their safe haven attributes over a shorter horizon. Additionally, these cryptocurrencies exhibit asymmetries in the short run. Further, we analyse the effect of US, Chinese and Indian EPU on bitcoin returns to understand the effect of EPU shocks of advanced and emerging economies. US EPU has long-run negative effects on bitcoin market, whereas Indian and Chinese EPU have no significant impact in long term. Moreover, our analysis also establishes the detrimental impact of the Indian government's crypto tax policy on bitcoin. The study has relevance for current and potential investors of the cryptocurrency market apart from the policymakers and regulatory bodies.

Macroeconomic information, global economic policy uncertainty and gold futures return predictability

This study investigates the impacts of the macroeconomic variables and global economic policy uncertainty (GEPU) on gold futures return predictability using a simple regression. We find that few macroeconomic variables (e.g., inflation) can significantly have impact on gold futures excess returns. Out-of-sample results indicate that inflation can increase the forecast accuracy compared to other strategies, even during the COVID-19, two- and three-month ahead forecasts. However, the GEPU index is useless to predict the gold futures returns in various conditions and formulations.

INDIVIDUAL FARMERS’ BANK LOANS AND DEPOSITS IN POLAND UNDER ECONOMIC UNCERTAINTY DURING THE COVID-19 PANDEMIC

Aim: The paper aimed to evaluate changes in farmers’ bank loans and deposit value under economic uncertainty, mainly caused by the COVID-19 pandemic. Methodology: The statistical data from Narodowy Bank Polski for the span of January 2018 – September 2022 was used and the dynamic indexes were computed. The Global Economic Policy Uncertainty Index was also used to show if the COVID-19 pandemic increased economic uncertainty. Results: The results show that in the analyzed period, an increase in the value of farmers’ bank deposits and a drop in farmers’ bank loans were observed. An increase in the value of farmers’ bank deposits occurred when interest rates were extremely low, so it can be stated that the growth of the value of farmers’ bank deposits resulted from economic uncertainty, and not from the rising profitability of deposits. At the same time, the value of farmers’ bank loans decreased, but it is difficult to indicate if this is an effect of the tightening of banks’ loan policies or of the farmers’ aversion to risk. Conclusions: The research concerning economic entities’ loan and deposit activity is a very important subject because of the increasing role of uncertainty nowadays. What is observed is that the value of farmers’ bank loans dropped but it is difficult to state for sure if this was caused by economic uncertainty and therefore reduced capital needs of farms or by the reduction of banks’ credit activity and negative credit decisions.

Analyzing the nexus between pandemic, policy uncertainty, and international tourists’ behavior in Taiwan

ABSTRACT The tourism and hospitality industry is the hardest-hit industry, owing to the disruptions from COVID-19. The tourism sector witnessed a mounting loss of about 2.86 trillion dollars during the pandemic period. Exploring how inbound international tourists’ perception gets affected by uncertainty originating from the pandemics can have important insights to revive tourism during the new normality. Against this backdrop, this paper explores the impact of the pandemics and global economic uncertainty on international inbound tourist arrivals to Taiwan, a major travel destination of the East during the period 1997 to 2020. In particular, we augment the traditional demand model of tourism with economic uncertainty indicators and disaster and pandemic dummies, to explore the impact on visitor arrivals in Taiwan from major countries around Asia, Africa, Oceania, Europe, and America. To this end, the Autoregressive Distributed Lag (ARDL) along with the modified Wald test of Toda Yamamoto (T-Y) was applied. The empirical results depict that apart from the pandemics, the global economic policy uncertainty has adverse implications on international tourism demand. The findings have important policy implications. Recovery of tourism demand should move along: i) new concepts on products; ii) new destination imagery and iii) marketing strategies through collaboration from the state.

What drives the volatility of non-fungible tokens (NFTs): macroeconomic fundamentals or investor attention?

ABSTRACT Non-fungible tokens (NFTs) have experienced wild market fluctuation during the past years, which leads to the high volatility of NFT’s daily price. This paper examines two potential volatility drivers of NFTs: macroeconomic fundamentals and investor attention. We employ the global and local economic policy uncertainty (EPU) indices as the economic fundamentals’ proxies. The investor attention is represented by the Google search volumes (GSV) or NFTs attention index. Based on the empirical results of a modified generalized autoregressive conditional heteroskedasticity –mixed-data sampling (G-M) model, we find that either economic fundamentals or investor attention can increase the volatility of NFTs significantly. The monthly global EPU index adjusted by the current GDP and weekly GSV contain complementary information. Macroeconomic fundamentals and investor attention can jointly model the volatility of NFTs better than considering only one explanatory variable, as suggested by the G-M model with two explanatory variables. The results remain robust to alternative Twitter-based EPU indices and the ongoing COVID-19 pandemic period.

Analysis of the hedge functions of Bitcoin, Gold, and their Portfolios - Based on global events

The global current situation continues to be turbulent. International crises like the Covid-19 epidemic and the continuing Russian-Ukrainian war have thrown the global economy for a loop. As a result, global economic policy uncertainty has spiked due to the resulting spike in energy prices and economic disruptions. During the outbreak of Covid-19, prices of bitcoin (BTC) have moved higher, but its hedging effect is weakening. Also, combined with rising global inflation expectations and the constant rate hikes by central banks against inflation, bitcoin's hedging effectiveness is waning due to its strong correlation with equities. Furthermore, with the outbreak of the Russian-Ukrainian war, the price of gold continued to rise, and the relationship between gold and the global financial market decreased, confirming gold's diversification ability in a crisis. Simultaneously, the link between gold and bitcoin has weakened marginally. Ultimately, preliminary evidence suggests that gold and bitcoin can be used as complements, rather than substitutes, for diversification purposes during a crisis. This article will construct a portfolio about bitcoin and gold, and examine how individual gold and bitcoin and this portfolio performed as hedging assets throughout the Covid-19 pandemic and the Russian-Ukrainian war.

Continuous Wavelet Transform of Time-Frequency Analysis Technique to Capture the Dynamic Hedging Ability of Precious Metals

Exploring the hedging ability of precious metals through a novel perspective is crucial for better investment. This investigation applies the wavelet technique to study the complicated correlation between global economic policy uncertainty (GEPU) and the prices of precious metals. The empirical outcomes suggest that GEPU exerts positive influences on the prices of precious metals, indicating that precious metals could hedge against global economic policy uncertainty, which is supported by the inter-temporal capital asset pricing model (ICAPM). Among them, gold is better for long-term investment than silver, which is more suitable for the short run in recent years, while platinum’s hedging ability is virtually non-existent after the global trade wars. Conversely, the positive influences from gold price on GEPU underline that the gold market plays a prospective role in the situation of economic policies worldwide, which does not exist in the silver market. Besides, the effects of platinum price on GEPU change from positive to negative, suggesting that the underlying cause of its forward-looking effect on GEPU alters from the investment value to the industrial one. In the context of the increasing instability of global economic policies, the above conclusions could offer significant lessons to both investors and governments.

Nexus between commodities and banking sector financial soundness: The role of general macroeconomic setting in Ghana

The level of causation and interdependencies among three commodities (cocoa, gold, and Brent crude oil), five banking sector performance indicators (Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Return on Equity (ROE), Return on Assets (ROA) and Core Liquid assets to total assets (CLATA)), and three general macroeconomic indicators (Inflation, Exchange rate and Global Economic Policy Uncertainty) are explored in this study. As a result, the wavelet techniques are employed to investigate time-frequency and frequency-dependent nexus in the Ghanaian context. In terms of time-frequency, a mix of negative and positive bi-causality among commodities, banking sector performance indicators, and macroeconomic indicators are found. Outcomes from the wavelet multipleprovide that these variables are highly integrated, with the exchange rate leading in the long-run. Hence, implying that exchange rate in Ghana has a high susceptibility to shocks before the other variables in the study. We advocate Government of Ghana and policy-makers should fine-tune policies that take into account the impact on other economic factors. Policies should be initiated to minimise fluctuations in the exchange rate. To limit the adverse impact of inflation and GEPU, it is required that effective and efficient country-level policies geared towards stability be initiated to resuscitate the economy.

Forecasting the volatility of precious metals prices with global economic policy uncertainty in pre and during the COVID-19 period: Novel evidence from the GARCH-MIDAS approach

Economic policy is a major determinant of investment and financial decisions; Moreover, prices of precious metals are highly influenced by any uncertainty recorded in the global economic policy. Therefore, the prime consideration of the authors is to assess how global economic policy uncertainty influences the volatility of precious metals prices; particularly “gold, palladium, platinum, and silver” in the pre and during the COVID-19 pandemic. This research analyzed the full sample period (the 1997–2022), pre-COVID period (1997–2019), and during the COVID period (2020−2022) to evaluate the impact during different sample periods. Therefore, the GARCH-MIDAS approach is employed at the data set of different frequencies, i.e., monthly data of GEPU and daily data of precious metals. The results reveal a significant nexus between global GEPU and precious metals price volatility. The findings infer that any uncertainty recorded in global economic policy escalate the price volatility of gold, palladium, platinum, and silver prices. The present study increments the existing literature and provides insights for future scholars, investors, and policymakers.

How does economic policy uncertainty (EPU) impact copper-firms stock returns? International evidence

Using monthly data, we study 43 copper firms between January 2011 and March 2022. We analyze how copper-firms stock returns depend on copper-spot prices returns. Nevertheless, the main contribution of this article is to study how changes in Global EPU (GEPU) and Local EPU may impact on copper-firms stock returns and how both of them may influence the sensitivity of stock returns to copper prices returns. We find that both GEPU and Local EPU have a statistically significant and negative impact on stock returns. We also study regimes of high and low levels of EPU (Global and Local). For high levels of GEPU we find a negative relationship between stock returns and GEPU and for low levels of GEPU we detect a positive relationship. We also consider how high levels and low levels of Local EPU impact the relationship between copper spot returns and stock returns. When there are high levels of GEPU the sensitivity of stock returns to copper spot returns increases and the opposite is verified when there are low levels of GEPU. Using Local EPU we do not find significant changes in the sensitivity of stock returns to copper spot returns. As robustness test, we consider firms from other four industries (Gold, Oil, Electric Distribution and Gas Distribution). Most of the results show different behavior in each industry regarding the association between EPU and stock returns. We also run the main equations considering a six-factor model for returns (five factors from Fama and French) and the momentum factor. Finally, we do the analysis for copper future returns (90 days and 15 months), reporting similar results. We do not find significant changes in the results after doing all the robustness checking.

Can art hedge against economic policy uncertainty?: New insights through the NARDL model

This paper uses the nonlinear autoregressive distributed lag (NARDL) model to investigate whether art can hedge economic policy uncertainty. We analyze the impact of the global economic policy uncertainty (GEPU) on the global overall art price and the art price indices divided by category and creative period. We find that only Old Masters can hedge against shocks from global economic policy uncertainty in the long-run. The results of this paper have relevant implications to investors and collectors in the art market. Investors and collectors can make more sensible trading and investment strategies based on the level of the economic policy uncertainty in a period of time. When the global economic policy uncertainty rises, investors can pay more attention to Old Masters.

Global economic policy uncertainty and oil futures volatility prediction

This paper mainly investigates whether the information of global policy uncertainty index (GEPU) index can predict oil futures volatility based on MIDAS-type models. The results show that GEPU can efficiently predict oil futures volatility. In addition, the MIDAS model with regime switching and GEPU can further improve the forecasting accuracy of the models. This paper tries to provide new evidence of global economic policy uncertainty for oil futures volatility.