Influence Of Economic Policy Uncertainty Research Articles

경제정책 불확실성이 한국 금융 불안에 미치는 영향 분석

Korea is a small open economy and is significantly affected by macroeconomic shocks in major countries. Previous studies have shown that financial markets such as the stock market and foreign exchange market are sensitive to financial instability and economic policy uncertainty in major developed countries. However, these studies have typically focused on individual financial markets and have not comprehensively analyzed how financial stress in Korea is affected by uncertainty in major developed countries from the perspective of financial stability. In this study, we use the spillover index proposed by Diebold and Yilmaz(2009, 2012) to analyze the impact of economic policy uncertainty (EPU) in the United States, Europe, Japan, and Korea on Korea's financial stress index (FSI). The study examines the influence of economic policy uncertainty in these major developed countries on Korea's financial stress over time. Furthermore, the findings indicate that during periods of heightened uncertainty, major developed countries have a relatively large impact on Korea's financial stress.

Economic policy uncertainty, carbon emissions and firm valuation: International evidence

This paper explores how the uncertainty surrounding economic policies affects the decisions managers make, particularly with reference to carbon emissions. Notably, this is a pioneering effort as very few studies have examined the influence of economic policy uncertainty on decisions about either carbon emissions or renewable energy, and, in turn, the impact of these decisions on firm value. From a sample spanning 22 countries over the period 2007 to 2018, our results show that, while carbon emissions increase with policy uncertainty, this relationship is mediated by renewable energy consumption. Country factors such as climate change performance, emissions trading schemes, and business culture also affect this relationship. In countries where economic policy uncertainty tends to be high, firms generally have a lower market value, due in part to higher levels of carbon emissions. These findings highlight the importance of connecting policy uncertainty to decisions about carbon emissions and renewable energy. They also provide insights into the detrimental effects of policy uncertainty on firm value.

Heterogeneous effect of economic policy uncertainty and firm financial performance: Empirical evidence from India

AbstractGlobally, high levels of economic policy uncertainty (EPU) have revamped the debate about its impact on different economic parameters of firms. In this regard, the literature exhibits three gaps. First, the effect of EPU on firm financial performance in an emerging economy context. Second, whether the influence of EPU on firm performance is asymmetric? Lastly, the moderating role of leverage in the relationship between EPU and firm performance. This paper fills all three gaps using the real options theory and investment irreversibility theory for India's NIFTY 100 firms over the period 2010–2019. The study applies several panel data econometrics models suitable to obtain comprehensive and robust results. Specifically, findings from the two‐step system GMM confirm that EPU negatively influences financial performance, which is significant for both accounting (return on assets, return on equity, net profit margin) and market (Tobin's Q) based measures. Moreover, the results of panel quantile regression reveal considerable heterogeneity in the EPU‐financial performance relationship. Further, higher levels of EPU appear to have unfavorable effects on excessively indebted firms. Overall, the study recommends that governments need to be alerted to the fact that mitigating EPU is crucial for promoting sustainable firm financial performance.

The influence of economic policy uncertainty on stock market liquidity? The mediating role of investor sentiment

PurposeThe study examines the relationship between Economic Policy Uncertainty (EPU) and stock liquidity, and the mediating role of investor sentiment.Design/methodology/approachThis study draws on a sample of 4,620 firm-year observations covering nonfinancial firms in the United States from 2007 to 2020. We employ multiple regression analysis with panel data and path analysis with Structural Equation Modeling (SEM) to examine the impact of EPU on stock liquidity in detail.FindingsEPU significantly enhances stock liquidity. However, at elevated levels of EPU, this relationship reverses. The path analysis results indicate that EPU positively affects stock liquidity via the investor sentiment channel. This sentiment partially mediates the relationship between EPU and both trading volume and turnover rate, and fully mediates the relationship between EPU and both turnover price impact and illiquidity.Practical implicationsOur findings underscore the importance of liquidity for investors, who may require higher returns for holding more illiquid stocks. Second, they can help the government understand the implications of changes in EPU, highlighting the need for clear communication and the implementation of appropriate capital market policies.Originality/valueWhile considerable research focuses on the relationship between EPU and stock market liquidity, the analysis of the channels through which EPU influences stock market liquidity remains largely unexplored. Our study highlights the importance of investor sentiment in explaining this relationship.

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.

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.

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.

Economic Policy Uncertainty and Bank Credit Growth in Indonesia

Objective: This study examines the influence of economic policy uncertainty in countries with the largest capital investments in Indonesia, such as Singapore, China, Hong Kong, Japan, the United States, Korea, and the United Kingdom, on the credit growth of commercial banks in Indonesia. Design/Methods/Approach: The sample of this study is all commercial banks in Indonesia from January 2011 to December 2022. This study uses a quantitative approach, using monthly aggregate data on credit growth of commercial banks in Indonesia and economic policy uncertainty data for each country. Hence, the number of observations in this study amounts to 144. This study uses multiple linear regression with the EViews 12 analysis tool. Findings: The findings in this study show that the influence of economic policy uncertainty in the country with the largest capital investment in Indonesia has various influences. Of the several countries that were observed in the study, Japan was one of the countries that had a significant negative impact on the growth of commercial bank credit in Indonesia. Originality/Value: This study complements several previous studies regarding the impact of economic policy uncertainty on Indonesia's micro and macro economy. Studies regarding the impact of economic policy uncertainty on Indonesia's banking credit growth are still limited. Practical/Policy implication: The findings of this study can be used as a reference for banking managers when making decisions such as credit portfolio diversification. By spreading exposure to various sectors and industries, banks can reduce risks related to economic uncertainty in specific sectors. Banking managers need to design products and services that are more creative and adaptive to help banks remain competitive and attract customer interest amidst an uncertain economic situation.

Economic Policy Uncertainty, Political Connections, and Total Factor Productivity in China

Purpose – This paper aims to elucidate the complex relationship between Economic Policy Uncertainty (EPU) and Total Factor Productivity (TFP) in the context of Chinese A-share listed companies, exploring how various factors influenced this relationship from 2008 to 2020. Design/Methodology/Approach – Our research design utilizes a comprehensive dataset from Chinese A-share listed companies across various sectors to explore the impact of Economic Policy Uncertainty (EPU) on Total Factor Productivity (TFP). We analyze a range of factors, including pollution intensity, manufacturing status, market indices, institutional attention, analyst coverage, internal control mechanisms, and bank shareholding. Findings – The findings provide a nuanced understanding of how Economic Policy Uncertainty (EPU) impacts Total Factor Productivity (TFP) across Chinese A-share listed companies. Our analysis reveals that the influence of EPU on TFP is not uniform but varies significantly across different contexts, underscored by a variety of moderating factors. Among these, institutional attention and analyst coverage emerge as critical elements that shape the dynamics between EPU and TFP. Institutional attention, indicating the extent to which firms are monitored by regulatory bodies and investment institutions, plays a pivotal role in mitigating the negative effects of EPU. Research Implications – The findings provide valuable insights for policymakers and industry stakeholders, emphasizing the importance of strategic alignment in managing economic uncertainties. The study contributes to understanding the dynamics of economic policy uncertainties in a complex market like China, helping inform more effective policy and management strategies.

From brown to green: Are emerging countries moving in right direction? Testing the validity of LCC hypothesis

Since the United Nations endorsed the sustainable development goals in 2015, emerging economies have faced several issues in meeting the objectives set by the sustainable development goals. Environmental degradation is one of the main issues faced by emerging countries. To overcome this issue and for attaining sustainable development goals, this study is the earliest attempt to examine the asymmetric influence of economic policy uncertainty, renewable energy consumption, and technological innovations on load capacity factor under the framework of the load capacity curve for E-7 countries during 1996–2019. The preliminary tests confirm the absence of data normality; hence, we use panel quantile regression. The findings of the study reveal the presence of a U-shaped load capacity curve hypothesis in E-7 countries including China, Indonesia, Russia, Brazil, Mexico, India, and Turkey. This finding depicts that at an earlier stage, gross domestic product has an adverse influence on environmental quality but after achieving its threshold level, a further increase in gross domestic product growth becomes helping to boost environmental quality. An increase in economic policy uncertainty leads to a decrease in load capacity factor while renewable energy consumption has a favorable impact on load capacity factor to enhance environmental quality. The negative impact of technological innovation is that prevailing technology patterns are not environmentally supportive. Relying on these empirical outcomes current study recommends significant policy measures to achieve the targets of sustainable development goals including SDG 07, SDG 08, SDG 09, and SDG 13 as renewable energy, economic growth, innovations, and climate action, respectively, in E-7 economies.

The impact of economic policy uncertainty on insurance demand: the moderating effect of national culture

ABSTRACT We scrutinize the influence of economic policy uncertainty on the demand for insurance and delve into the moderating effect of national culture. Using an OLS model with two-way fixed effects, we find that heightened EPU engenders a decline in insurance demand, with discernible variances observed in the long-term and short-term effects on life and non-life insurance demand. Notably, uncertainty avoidance, power distance, and long-term orientation act as moderators, mitigating the adverse impact of EPU on insurance demand. Conversely, individualism exacerbates the negative consequences. Furthermore, our investigation uncovers that EPU primarily diminishes insurance demand by constraining residents’ income.

Insight into the Influence of Economic Policy Uncertainty on the Indian Nifty 50 Index

Objective: Existing literature attests to the longstanding global concern regarding Economic Policy Uncertainty (EPU), recognizing its impact on economic growth, employment, and investments. Despite its acknowledged influence, studies on EPU in India have been comparatively limited. This paper addresses this gap by utilizing 83 months of data (from January 2017 to November 2023) from the recently formulated EPU Index of India and monthly closing values of the Nifty 50. The objective is to find if there is an influence of EPU on the stock markets in India. Method: The study employs correlation analysis, Ordinary Least Squares (OLS), and Quantile regressions, to investigate the relationship between EPU and the Nifty 50, representing the Indian Stock Market. Result: While overall findings indicate a low correlation, year-wise analyses reveal a notable negative correlation in specific years, notably during the COVID year. OLS and Quantile regressions further affirm a negative impact of EPU on Nifty 50, particularly evident in lower quantiles, with the effect diminishing in higher quantiles. Conclusion: The study indicates the limited effect that EPU has on the stock market. Though there is a negative association, it could be temporary and a short-term variation. Given the novelty of the EPU index and limited studies in India, this paper contributes significantly to the existing literature, particularly in the Indian context.

Does internal cash flow-external financing sensitivity react to economic policy uncertainty and geopolitical risk? Evidence from Saudi Arabia

PurposeThis study aims to investigate the influence of economic policy uncertainty (EPU) and geopolitical risk (GPR) on the relationship between internal cash flow and external financing in an emerging market, Saudi Arabia. It also examines the role of asset tangibility and financial crisis in establishing this relationship.Design/methodology/approachThe sample was taken from non-financial sector companies listed on the Saudi Stock Exchange between 2002 and 2019. The data were analyzed using panel data regression analysis, including ordinary least squares and fixed effects model. The author addresses potential endogeneity through the generalized method of moments.FindingsThis study found that both EPU and GPR reduce the sensitivity of external financing to internal cash flow. This implies that firms depend more on internally generated funds during periods of increased EPU and GPR. Besides, this study found that the influence of EPU and GPR on the sensitivity of external financing to internal cash flow is more (less) negative for more tangible firms (during the financial crisis period). This result implies that Saudi firms boasting a higher level of tangibility are more flexible when it comes to seeking external financing. However, the presence of uncertainty during the crisis period makes the external financing costly, and therefore, firms will be less likely to raise funds from external sources.Practical implicationsThis study has important implications for managers, policymakers and regulators. First, the paper findings provide insights for corporate decision-makers in helping them to focus on internal funds to finance their investment during uncertain times. Second, the findings help managers to understand the role of asset tangibility in raising external funding when firms face financial constraints due to uncertainty. Third, this study also helps corporates to focus on internal funds to finance their investment during the crisis period because EPU and GPR increase the cost of external finance. Finally, the results provide guidelines for policymakers and regulators to make appropriate policy measures to increase the easy availability of external finance during periods of increased EPU and GPR.Originality/valueThis paper is the first to shed light on the impact of internal funds on external financing while paying close attention to the role of EPU and GPR.

How do economic policy uncertainty and leverage impact firm-level cash holding distribution of housing companies in an emerging economy? A quantile regression approach

PurposeHigh economic policy uncertainty forces firms to accumulate a higher level of cash than during normal business periods. However, it is not evident that economic policy uncertainty has a homogeneous impact across cash-holding distributions. This paper aims to study the impact of economic policy uncertainty, leverage and their interaction on cash-holding distributions.Design/methodology/approachThis study adopted a quantile regression approach to examine the influence of economic policy uncertainty and firm leverage on firm-level cash-holding distributions. To investigate the influence across quantiles, the author estimated 19 quantiles between 0.05 and 0.95.FindingsThis study finds that both economic policy uncertainty and firm leverage significantly affect firm-level cash-holding distributions heterogeneously. But, the impact of the interaction of these two variables is significant only for firms placed in the 60th to 85th quantiles of cash holding distribution.Originality/valueThe study adds to the existing knowledge of determinants of firm-level cash holdings but takes exogenous variables as economic policy uncertainty. The paper builds on a unique sample setting wherein, the cash holdings of all nonfinancial firms have increased many folds, including housing companies in an emerging economy.

How geopolitical risk and economic policy uncertainty impact coal, natural gas, and oil rent? Evidence from China

While numerous studies have delved into the determinants of natural resource rents, the influence of economic policy uncertainty and geopolitical risk on coal, natural gas, and oil rents remains underexplored. Addressing this lacuna, our study pioneers an examination of the repercussions of economic policy uncertainty, geopolitical risk, and economic growth on the rents of coal, natural gas, and oil in China spanning the period 1990–2021. Utilizing the cutting-edge Fourier ARDL (FARDL) methodology, our findings unveil that economic policy uncertainty notably hampers coal and natural gas rents. Intriguingly, geopolitical risk does not exert a significant influence on coal and gas rents. Moreover, a discernible absence of cointegration between oil rent and the trio of economic policy uncertainty, geopolitical risk, and economic growth was observed. Economic growth emerges as a double-edged sword, bolstering coal rent while adversely affecting gas rent in the long run. To optimize natural resource rents, it is imperative for policymakers to mitigate economic policy uncertainty, thereby invigorating the coal and natural gas sectors. Concurrently, the promotion of economic growth can augment coal rent, but the natural gas sector demands innovative strategies due to its divergent response.

The impact of economic policy uncertainty on stock prices

This study employs a panel local projections (LP) model to analyze the influence of economic policy uncertainty on real equity returns based on thirteen economies, collectively accounting for 77.4 % of global output. Utilizing both linear and non-linear LP models, we demonstrate that economic policy uncertainty exerts a negative impact on real equity returns. Moreover, the non-linear LP model reveals that uncertainty amplifies real equity return losses, particularly during non-expansionary periods, where the impact is twice as high on impact and exhibits greater persistence. These findings offer valuable insights for policymakers and investors.

How does economic policy uncertainty influence the innovation activities: Empirical evidence from BRICS

This study investigates the relationship between Economic Policy Uncertainty (EPU) and innovation activities within the context of the BRICS countries (Brazil, Russia, India, China, and South Africa) over the period from 2000 to 2019. Focusing on the interplay between economic policy uncertainty and innovation, this research aims to provide empirical evidence regarding the potential impact of EPU on innovation efforts within these emerging economies. By employing FMOLS (fully modified ordinary least square) and controlling for other relevant factors, the study seeks to isolate the specific influence of economic policy uncertainty on innovation outcomes across the BRICS countries. The findings of the study reveal a significant and negative relationship between EPU and innovation activities. The empirical evidence suggests that heightened levels of economic policy uncertainty tend to stifle innovation efforts across these economies. This negative effect underscores the potential hindrance that uncertain economic environments can impose on research, development, and the implementation of new ideas and technologies. The implications of these findings are important for policymakers, businesses, and researchers. Policymakers can use this evidence to recognize the importance of providing stable and predictable economic policy frameworks to foster innovation. In conclusion, this study contributes to the existing literature by shedding light on the intricate relationship between EPU and innovation activities. The empirical evidence presented herein underscores the need for policy measures that promote stability and predictability in economic environments to facilitate sustained innovation and economic growth.

The Effect of Trade Agreements on Korea’s Bilateral Trade Volume: Mitigating the Impact of Economic Uncertainty in Trading Countries

Purpose - This research empirically analyzes the influence of economic policy uncertainty and free trade agreements (FTAs) on bilateral trade volumes between Korea and its trading partners. The study investigates whether fluctuations in the Economic Policy Uncertainty Index (EPUI) for both Korea and its trading partners significantly impact trade volumes and whether the implementation of FTAs mitigates these effects.
 Design/methodology - The study employs dynamic panel data analysis using the system generalized method of moments (system GMM) estimation method to achieve its research objectives. It utilizes country-month-level panel data, including the EPUI, trade volume between Korea and its trading partner countries, and other pertinent variables. The use of system GMM allows for the control of potential endogeneity issues and the incorporation of country-specific and time-specific effects.
 Findings - The analysis yields significant results regarding the impact of economic policy uncertainty on Korea's exports and imports, particularly before the implementation of FTAs. An increase in the EPUI of trading partners leads to a notable increase in Korea's exports to them. Conversely, an increase in Korea's EPUI negatively affects its imports from trading partners. However, post-FTA implemen- tation, the influence of each country's EPUI on trade volume is neutralized, with no significant difference observed.
 Originality/value - This research contributes to the existing literature by providing empirical evidence on the interaction effects between economic policy uncertainty and FTAs on bilateral trade volumes. The study's uniqueness lies in its examination of how FTAs mitigate the impact of economic uncertainty on trade relations between countries. The findings underscore the importance of trade agreements as mechanisms to address economic risks and promote international trade relations. In a world where global market uncertainties persist, these insights can aid policymakers in Korea and other countries in enhancing their trade cooperation strategies and navigating challenges posed by evolving economic landscapes.

Deciphering the moderation influence of economic policy uncertainty in the dynamics of energy poverty-government expenditure nexus in SSA

Deciphering the moderation influence of economic policy uncertainty in the dynamics of energy poverty-government expenditure nexus in SSA

Economic policy uncertainty and Indian banking stability: the mediating role of regulation and supervision

PurposeThe purpose of this study is to explore how the unprecedented rise in the economic policy uncertainty influence Indian banking sector stability. The unprecedented rise in the economic policy uncertainty during the recent pandemic has garnered the attention of policymakers to investigate its consequences on different sectors of the economy.Design/methodology/approachIn this quest, the present study uses system generalized method of moments and other econometric tools to examine the influence of economic policy uncertainty on the Indian banking sector, covering the time frame from 2000 to 2022. In addition, the current study also investigates the mediating role of regulation and supervision in the nexus of economic policy uncertainty and the Indian banking sector stability.FindingsThe empirical outcome reveals that economic policy uncertainty negatively influences banking stability. However, when economic policy uncertainty interacts with stringent banking regulations, private monitoring and supervisions, it assists in diversifying the negative impact of economic policy uncertainty on the Indian banking sector stability.Originality/valueTo the best of the author’s knowledge, the study is an original work and provides robust estimates that will assist policymakers in understanding the influence of policy uncertainty on the banking stability. Moreover, the study also helps in understanding the role of supervision and regulation in mitigating the negative consequences of policy uncertainty on the banking stability.