Increase In Economic Uncertainty Research Articles

Economic uncertainty and corporate cash holdings: Evidence from Taiwan

We utilize data from publicly listed firms and unlisted entities in Taiwan spanning the period from 1990 to 2020 to investigate the impact of global, Asia-Pacific, China, or Taiwan’s economic uncertainty on firm cash reserves within a small open economy. Our empirical findings indicate that, as economic uncertainty increases, Taiwanese firms demonstrate a tendency to increase their cash holdings, particularly those reliant on exports. Smaller and unlisted export-oriented firms encounter greater challenges in fund management, thereby leading to an augmentation in their cash reserves. Conversely, enterprises primarily focused on domestic sales exhibit a diminished response to uncertainty, with the exception of smaller listed companies that marginally raise their cash holdings. These results illuminate the influence of financing constraints, export reliance, and various uncertainties on decisions pertaining to cash holdings. Furthermore, the study underscores the dependence of Taiwanese firms on trade and emphasizes the impact of external economic uncertainty on their decision-making process.

The association between economic uncertainty and suicide in Japan by age, sex, employment status, and population density: an observational study

Suicide is one of the ten leading causes of death globally, and previous research has revealed a link between economic conditions and mental health. However, the literature has focused primarily on recessions and unemployment, i.e. actual economic developments, as opposed to uncertainty, which relates to economic developments that have not (yet) materialised. This study examines the differential association between economic uncertainty and suicide in Japan, depending on age, sex, employment status, and population density, in order to identify the groups that are affected the most. Using monthly prefectural suicide mortality data from the Ministry of Health, Labour and Welfare and a monthly economic uncertainty index for the period 2009 to 2019, we employed a fixed effects panel data approach to examine the association between uncertainty and suicide by population group. We found that a 1% increase in economic uncertainty is associated with a 0.061 increase in the monthly number of suicides per 100,000 people per prefecture, on average (coefficient: 6.08; 95% CI: 5.07-7.08), which constitutes a 3.62% increase. Self-employed people, as well as men in their 50s and unemployed men, experience the highest additional risk of suicide when uncertainty increases. The association was approximately three times stronger for males than for females, and a strong association was observed for self-employed males living in more densely-populated areas. Uncertainty appears to relate to suicides for most groups, but self-employed people, males, and those living in more densely populated areas appear to be more at risk of suicide in periods of increased economic uncertainty. Our results provide an indication of which groups mental health services and prevention strategies can focus on in times of economic uncertainty. None.

Maternal Mental Health Responses to COVID-19 Shocks and Uncertainty in Rural Pakistan

In this paper, we investigate the association between a battery of mental health measures and experienced morbidity and mortality due to COVID-19, worry about disease risk, experienced economic shocks, and economic uncertainty about the future. We find that an environment of heightened economic uncertainty might impact mental health above and beyond the effects of realized shocks. A 1 standard deviation increase in economic uncertainty is associated with a 0.223 standard deviation decrease in mental health. This association is strongest among women who were depressed at baseline. We also find that current uncertainty is associated with future economic shocks.

Bi-level optimisation of subsidy and capacity investment under competition and uncertainty

In this paper, we develop a bi-level real options framework for deriving the equilibrium Government subsidisation and firm-level capacity investment policy in a duopoly market structure. We find that strategic interactions with the Government may impact a firm’s capacity investment decision significantly and that the equilibrium subsidisation policy depends on both the market structure and the type of duopolistic competition. Interestingly, the provision of greater subsidy to the leader raises the follower’s incentive to invest earlier and in a bigger project. The loss in value of the leader, due to the follower’s entry, relative to the monopolist increases with economic uncertainty and, although a subsidy can mitigate this loss, its effect becomes less pronounced as economic uncertainty increases. We also find that a profit (welfare)-maximising Government does not offer (offers) a subsidy in a highly uncertain environment or upon low tax rate, while higher tax rate does not always decelerate investment. Finally, we find that while competition is always desirable for a social planner, a profit-maximising Government may benefit more under pre-emptive competition.

COVID-19 pandemic and cash holding in consumer goods sector: International evidence

Cash holdings, or the amount of cash and cash equivalents a company holds, become more significant when economic uncertainty increases. Reddaway (1936) argued that cash holdings serve transactional, precautionary, and speculative purposes, underscoring their importance, particularly during economic downturns. This pandemic has encouraged companies to manage their financial resources carefully. This research explores the impact of the COVID-19 pandemic on cash holdings in consumer goods companies across the initial three years of the pandemic. Data were sourced from the Wall Street Journal Database (WSJ), spanning 2018 to 2022. Utilizing the fixed effects model (FEM), the analysis encompasses a dataset of 1.491 companies from 80 countries. The findings indicate a substantial and positive correlation between the COVID-19 pandemic and cash holdings within the consumer goods sector. This effect is pronounced in the first, second, and third years of the pandemic, highlighting companies’ decisions to bolster cash reserves as a response to pandemic-induced uncertainty. This analysis underscores the widespread influence of the COVID-19 pandemic on cash holdings across industries, market types, and geographical regions.

The nexus between economic policy uncertainty and access to finance: a study of developing countries

PurposeThis paper attempts to document the effect of economic uncertainty on financing constraints faced by private firms.Design/methodology/approachOrdered logistic regression is used to analyze the data of private firms from 101 developing countries. The data was provided by the World Bank's Enterprise Surveys and was gathered during the period between 2006 and 2019.FindingsThe findings show that firms headquartered in countries with high economic uncertainty face more financing constraints than firms headquartered in countries with low economic uncertainty. The authors argue that the increase in economic uncertainty allows capital providers to adjust their lending decisions by reducing the provision of capital to firms. The paper also shows that firms headquartered in countries with strong institutional infrastructure and well-functioning firms are less likely to be affected by economic uncertainty while accessing finance.Practical implicationsThe findings would help managers, investors, regulators, and policymakers better understand the implication of economic policy uncertainty on the real economy. This study also sheds the light on the importance of minimizing volatility, ambiguity, and randomness in governmental decisions and policies. Regardless of the pertinence of these policies, arbitrariness surrounding their development and communication can limit their effectiveness and produce unwanted effects.Originality/valueThis paper is closely related to prior literature that documents the behavior of credit providers and investors (the supply side) during the periods of economic uncertainty. The authors differ from this strand of literature by taking the perspective of firms – the demand side.

Road traffic mortality and economic uncertainty: Evidence from the United States

Previous studies have shown that financial turbulence is associated with a short-term increase in road traffic collisions, largely due to drivers’ emotional state, distraction, sleep deprivation and alcohol consumption. In this paper we advance this debate by studying the association between economic uncertainty and road traffic mortality in the United States. We used a State-level uncertainty index and State fatalities for the period 2008–2017 and found that a one standard deviation increase in economic uncertainty is associated with an additional 0.013 monthly deaths per 100,000 people per State, on average (a 1.1% increase) - or 40 more monthly deaths in total nationwide. Results are robust to different model specifications. Our findings show that, similar to drink-driving, it is important to raise awareness about driving when distracted due to financial worries and during periods of economic uncertainty.

The Internet, economic uncertainty, and the shadow economy: “The Good, the Bad, and the Unknown”?

AbstractThis study investigates the influences of economic uncertainty and Internet usage on the informal economy. Notably, the study focuses on the effects of the association of economic uncertainty and Internet usage on the informal economy. The empirical analysis is carried out for a global sample of 124 economies from 1996 to 2017. Applying different estimates and different robustness checks, the results are consistent and robust. Internet usage leads to a decline in the shadow economy, while economic uncertainty has the effect of increasing the shadow economy. Interestingly, the positive influence of economic uncertainty on the shadow economy is likely exacerbated by Internet development. Lastly, analyses for several subsamples by time periods, income levels, and regions reveal additional findings. The negative impact of Internet usage on the shadow economy is consistent across income groups, regions, and time periods, except for a surprising positive impact in North America. The positive impact of economic uncertainty is also consistent in most income groups but more dominant in a period of low economic uncertainty. Interestingly, economic uncertainty is found to have a negative impact on the informal sector in low‐income economies and Sub‐Saharan Africa. Overall, the results have an important implication: Increases in economic uncertainty motivate economic agents to move to informal sectors, and this is supported by information technologies.

Economic uncertainty and cross section of stock returns: Australian evidence

In this paper, we construct a new macroeconomic uncertainty index for the Australian economy. We then examine the pricing implication of macroeconomic uncertainty on the cross section of Australian equity returns. Our paper replicates Bali, Brown and Tang (2017)’s findings that U.S. investors pay (require) higher prices (lower premium) for stocks that perform well when economic uncertainty increases. We also find evidence supporting such premium in the Australian equity market.

Revisiting the relationship between economic uncertainty and suicide: An alternative approach

Previous research provides evidence that economic uncertainty is powerful enough to precipitate suicide. This study examines whether the relationship between economic uncertainty and suicide in the US is (i) context dependent and (ii) asymmetric. To answer these questions, we link US monthly total- age- and gender-specific suicide rates to the US Economic Policy Uncertainty index between 1999 and 2019, controlling for month fixed effects, year fixed effects and unemployment rates. We find that the relationship between economic uncertainty and the suicide rates of males in their mid-career (aged 25–54) and late career (aged 55–64) is context dependent. Our results show that absolute monthly changes in economic uncertainty have no effect on suicide rates of males aged 25–54 and 55–64, whereas when these changes are unexpected – departing from the economic uncertainty regime during which they occur – they precipitate the suicide of these age- and gender-specific groups. Additionally, our findings provide evidence of the presence of negativity bias in these relationships. We show that extreme unexpected increases in economic uncertainty induce suicide of males aged 25–54 and 55–64, while extreme unexpected decreases in economic uncertainty do not significantly decrease suicide rates of these age- and gender-specific groups. Females, with the exception of those aged 65 plus, are perceived to be predominantly insulated from changes in economic uncertainty. Our results suggest that females aged 65 plus are particularly affected by extreme unexpected increases in economic uncertainty, suggesting that the relationship for females aged 65 plus is context dependent and exhibits negativity bias.

Global economic uncertainty and suicide: Worldwide evidence

Economic uncertainty is a driver of the business cycle. Its leading properties make it a key advanced indicator to assess the impact of socioeconomic factors on suicide for prevention purposes. This paper evaluates the effect of economic uncertainty on suicide rates worldwide. Uncertainty is gauged by a global economic policy uncertainty index. Suicide rates from 183 countries between 2000 and 2019 are matched to annual economic uncertainty, controlling for unemployment and economic growth in a fixed-effects panel model. Overall, the analysis suggests that increases in lagged economic uncertainty, as well as in unemployment and economic growth, may lead to an increased risk of suicide. When replicating the experiment for different regions of the world, the greatest impact of an increase in economic uncertainty can be found in Africa and the Middle East. Given the anticipatory nature of economic uncertainty regarding the evolution of economies, and its relationship with suicide rates, the results highlight the usefulness of uncertainty indicators as tools for the early detection of periods of increased suicide risk and the design of suicide prevention strategies.

THE PROBLEM OF ASSESSING THE EXPECTED CONSEQUENCES OF ECONOMIC POLICY

The starting point for economic policy analysis is the difference between what exists and what should exist. Therefore, opinions (views) about what should be, can be used to assess the observed economic situation and development. It is possible to come up with recommendations on how to avoid the differences between what exists and what should exist. In reality, we find factual events that any person can check. There are also desirable events that go beyond such a check. It is on the basis of their comparison that the content of both evaluations and recommendations is formed. Normative views express subjective desires, so the result of the evaluation can not be considered "right" or "wrong". It is possible that the entity (or economic interest group) will consider them acceptable or even reject them. As a result of the significant increase in economic uncertainty in modern conditions, the complex presentation of the targeted aspect of economic policy, as well as the substantial improvement of the degree of policy adaptability itself, taking into account the requirements for ensuring the continuity of systemic long-term forecast work, are especially relevant.

The Heterogeneity Research of the Impact of EPU on Environmental Pollution: Empirical Evidence Based on 15 Countries

While economic growth has been the main goal of countries around the world, environmental problems such as air pollution have also arisen. Since the increase in economic uncertainty is limiting production capacity and consumers’ marginal propensity to consume, which reduces CO2 emissions, economic policy uncertainty has become one of the most important factors affecting CO2 emissions. COVID-19 has demonstrated that economic policy uncertainty reduces the enthusiasm of market participants, which, in turn, reduces energy demand and CO2 emissions. In order to further study the impact of economic policy uncertainty on air pollution, this study uses a panel model to empirically test the data for a sample of 15 countries covering the period from 1997 to 2019. According to the empirical results, we find that the economic policy uncertainty has a significant negative impact on per capita CO2 emissions. That is, the higher the uncertainty of economic policy, the lower the per capita CO2 emissions of countries. What’s more, this negative effect is larger in emerging market countries than in advanced countries.

Economic uncertainty and tourism consumption

This study examines the influence of economic uncertainty on tourism. The key hypothesis to test is that while economic uncertainty reduces outbound tourism, it may boost domestic tourism due to the economic-stagnant effects. Utilizing the framework of the theory of reasoned action to analyze a global sample of 124 countries over the period 1996–2017, we find some initial evidence showing that an increase in economic uncertainty encourages domestic tourism while reducing outbound tourism in the global sample. Notably, while these effects are consistent in the upper-middle-income economies, an increase in uncertainty has a positive impact on both domestic and outbound tourism in lower-middle-income economies and a negative impact on both domestic and outbound tourism in higher-income economies. The key implementation of this study is that tourism development is not always associated with economic development and stability; sometimes it could be a signal of economic stagnancy and inactiveness.

Does culture play a role in the stock market's response to uncertainty?

AbstractWhile a growing body of literature documents a decrease in stock returns with an increase in economic uncertainty, the magnitude of this decrease may differ across countries. This paper examines whether a national culture that shapes its people's views towards uncertainty can serve as an explanation if there are heterogeneous responses of the stock market responses to an increase in economic uncertainty at the country level. Using the economic policy uncertainty (EPU) index to proxy for economic uncertainty and employing an SVAR model, this paper first finds that the magnitude of a stock market's response to an increase in uncertainty varies across countries. This paper then adopts the uncertainty avoidance index (UAI) as a proxy measure of culture relating to people's views towards uncertainty and finds that the observed cross‐country heterogeneity is correlated with the degree of a society's uncertainty avoidance. The stock market index is likely to drop more in response to an increase in uncertainty in countries with higher uncertainty avoidance.

The effect of economic uncertainty on narrow money demand and its stability in New Zealand: An empirical investigation

The main objective of this paper is to investigate whether economic uncertainty affects narrow money demand in New Zealand and whether the specified money-demand function remains stable over time. New Zealand adopted inflation-targeting in the early 1990s by discarding monetary-targeting or any other strategy of monetary policy for price stability on the grounds that instability in the narrow money-demand function might sever the relationship among money, output, prices, interest rates, and exchange rates, as the classical monetary theory suggests. This paper specifies an augmented money-demand function for an open economy that includes economic uncertainty and inflation volatility as two additional determinants of money demand. Quarterly data for New Zealand for the period 1995Q1–2017Q4 is used to determine whether these variables remain significant in an augmented money-demand function in this country. The empirical results, obtained by the autoregressive distributed lag (ARDL) approach to cointegration, suggest that there exists a cointegral relationship among variables in the specified model and that economic uncertainty negatively affects narrow money demand in New Zealand. Further, the empirical results, obtained by the non-linear ARDL (NARDL) approach, suggest that economic uncertainty affects narrow money demand asymmetrically. An increase in economic uncertainty lowers narrow money demand, while a decrease in economic uncertainty does not increase – and​ instead seems to decrease – narrow money demand. Unlike with economic uncertainty, an increase in inflation volatility, which represents inflation uncertainty, increases narrow money demand. Although it is not conclusively established in this paper, the effect of inflation uncertainty on narrow money-demand seems symmetric. The narrow money-demand function is found in this paper to have remained stable irrespective of whether the model is estimated by the ARDL or NARDL approach. This paper draws the conclusion that the abandonment of money in the formulation of monetary policy strategy, such as inflation-targeting in New Zealand, cannot be justified on the grounds of instability in the narrow money-demand function.

중국경제정책 불확실성의 장기국채 수익률에 대한 영향 분석

The purpose of this study is to analyze how the increase in economic uncertainty affects the flow of funds in the financial market from the perspective of the current time when Chinese economic uncertainty is growing again. More specifically, this study aims to analyze the relationship between treasury bond yield and economic policy uncertainty to assess whether the uncertainty has an impact on the long-term treasury bond through the preference for safe assets. Two possibilities exist. The first is that, with the growth and development of the Chinese financial economy, it has developed substitutability between risky assets represented by stocks, especially long-term treasury stocks and safe assets represented by treasury bonds. The second is that, although China’s bond market is world’s the second or third largest in terms of issued bonds, the transaction volume falls short of this, and participants are limited, resulting in insufficient market supply and transaction with prices not fully reflecting such information. Therefore, this study aims to verify which of these two possibilities is correct through empirical analysis. This study confirms that, although the Chinese bond market is still immature in terms of trading volume and market participation, long-term government bond yields respond due to the preferences for safe assets caused by the increasing economic uncertainty.

Bank credit in uncertain times: Islamic vs. conventional banks

This paper explores whether the impact of economic uncertainty on credit growth differs for Islamic vs. conventional banks. Using a sample of 416 banks (58 Islamic and 358 conventional) in 12 countries, the findings indicate that an increase in economic uncertainty significantly decreases the credit growth of conventional banks but does not have any significant impact on Islamic banks’ credit growth. Our results are robust to alternative specifications and addressing endogeneity concerns using GMM estimators. We further observe that our findings are stronger for the following countries: (1) countries with explicit deposit insurance protection system for Islamic banks, (2) lower foreign dominance, and (3) countries with a higher share of deposits and assets in Islamic banks.

Exploring the influence of economic policy uncertainty on the relationship between tourism and economic growth with an MF-VAR model

Using a mixed-frequency vector autoregressive (MF-VAR) model, this article attempts to determine whether or not the relationship between tourism and economic growth changes in the presence or absence of economic policy uncertainty (EPU) shock. Moreover, we further our analysis by focusing on whether or not there is a significant difference in the distinct impact intensity of Hong Kong, Chinese, and global EPU. The study period spans April 1998 to March 2018. The results indicate the following. First, the existence of Hong Kong, Chinese, and global EPU does not affect the direction of the impulse response; rather, its primary influence is on the size of the impact. Second, the different ranges of EPU have different impact intensities. Third, compared to the MF-VAR model, the quarterly frequency vector autoregressive model does not fully capture the impact of EPU, especially the negative impact of global EPU on tourism. Therefore, policymakers and tourism stakeholders should develop targeted marketing plans to maintain expected tourism demand if economic uncertainty increases.

Economic uncertainty, ownership structure and small and medium enterprises performance

AbstractThis paper investigates the effect of economic uncertainty on the performance of small and medium enterprises (SMEs) over the period 2007–2016. This paper also examines the effects of ownership structure on the relation between Economic Uncertainty and firm performance. We find that an increase in economic uncertainty is negatively associated with the performance of SMEs. Our results also reveal that increased economic uncertainty is associated with a lower performance level for state‐owned SMEs, whereas foreign‐owned SMEs can better mitigate the negative impact of on their performance than domestic‐owned firms.