Policy Uncertainty Index Research Articles

Энтропия основных фондовых индексов как показатель неопределенности состояния экономики

The article considers the problem of assignment the optimal numerical criterion for assessment the stability and securi-ty of the economics, which allows to analyze the state of the economics and make decisions on its regulation. It is pro-posed to use the value of economics uncertainty as such criterion. The uncertainty is calculated as the entropy of the main stock indexes. The authors had calculated the entropy of the main stock indices over a ten-year time interval, performed a comparative analysis of the obtained results with historical data of the known economic policy uncertain-ty index, explained the choice of the entropy value as an uncertainty indicator for the economics.

How Economic Policy Uncertainty Drives Long-term Industry Beta: Evidence from North America

Purpose: This study aims to evaluate the nature of the relationship between economic policy uncertainty and industry beta and the cross-sectional heterogeneity between them. Theoretical Framework: Industry Return is derived from the annual market capitalization of each industry by taking a summation of all firms' market capitalization values to find out the industry beta variable. The categorization of 48 industries according to the Fama-French model has been defined as the industry in this study. The main explanatory variable for this research strategy is the Economic Policy Uncertainty or the EPU. Economic policy uncertainty is measured based on the given index by Baker, Bloom, and David index. Baker, Bloom, and Davis, or BBD, perceive that there are different manners by which the economic policy uncertainty can be evolved. For instance, economic policy uncertainty can be influenced by what different types of discussions related to economic policies are going to be undertaken. BBD has tried looking into the landscape regarding the economic policy uncertainty overall through the eyes of newspapers based in the USA. In addition, there has been textual analysis by Baker, Bloom, and Davis or BBD over different types of digital archives for the top 10 U.S. newspapers for obtaining the count of articles on a monthly basis for every newspaper so that they can be able to focus on the specific economic policy uncertainty. Methodology: Positivist research philosophy has been implicated in conducting this research study. From the research approach perspective, the deductive research approach has been implemented. In addition, a quantitative research strategy has been used for modeling purposes and explanation. Furthermore, an experimental research design has been incorporated into this research strategy. The required data set has been gathered from secondary sources, including the WRDS and BBD databases. Industry return has been calculated based on industry market capitalization. From a modeling perspective, a baseline time series regression model has been incorporated. In this research conduction, there has been an analysis of 10 U.S. industries. The time span is from 2000 to 2020. In addition, there has been an analysis of different policy uncertainties based on the decomposition of EPU. Results & Conclusion: First, the impact of the economic policy uncertainty in the combined form on the industry-level betas has been analyzed. In this case, the entire time scale of 19 years has been divided into three classes: the financial turmoil period from 2001 to 2006, the financial turmoil period from 2007 to 2010, and finally, the financial turmoil period from 2011 to 2020. It has been pointed out that overall, there has been a statistically significant positive impact of economic policy uncertainty on industry level-betas mostly on all industries. In addition, when there has been a decomposition of the economic policy uncertainty index, a statistically significant positive association has been found regarding monetary policy uncertainty and fiscal policy uncertainty. Originality: The significance of this research is that there has been a one-to-one relationship finding on the impact of EPU on industry-level beta. Very few literatures have covered this issue broadly. One notable literature on this topic was conducted by Yu et al. in 2017. However, this research study has analyzed another ten industries in North America that have not been previously analyzed. In addition, for deep insight, the research framework has been divided into three parts: overall period analysis, pre-financial crisis turmoil, and post-financial crisis turmoil periods. In addition, there has been an analysis of the impact of component-wise seven policy uncertainty index on industry-level beta. Contribution: Different factors, including macroeconomic phenomena, can influence industry-level beta or systematic risk. In recent times, economic policy uncertainty analysis has become inevitable for measuring the policy implications and their impacts on industry-level risk to determine their dynamics. The relationship between the economic policy uncertainty index and the industrial structural model of risk dynamics has been established by this research study.

Home country uncertainty and cash holdings: Evidence from multinational subsidiaries in South Korea

Using data on South Korean subsidiaries with 18 different countries of origin and a newspaper-based economic policy uncertainty (EPU) index, we investigate the effect of uncertainty transmission on multinationals’ key decisions. Subsidiaries of multinational corporations face host and home country uncertainty. We document that Korean subsidiaries significantly increase their cash holdings when EPU increases in their home countries, indicating that national uncertainty shocks are transmitted to other countries through multinational networks. We further show a more pronounced home EPU effect when parent companies hold a greater share of subsidiary equity. The home EPU effect is robust to the inclusion of additional home country factors and alternative definitions of home EPU and cash holdings. Additionally, we find that subsidiaries reduce their capital expenditures when their home EPU increases.

Climate uncertainty and green index volatility: Empirical insights from Chinese financial markets

This study investigates the influence of climate uncertainty on green index volatility (e.g., the China Low Carbon Index (CLC), CSI Green Investing Index (GI), CSI Environmental Governance Index (EG), SSE Social Responsibility Index (SR), and SSE Corporate Governance Index (CG)) by employing three climate uncertainty indicators: Chinese climate policy uncertainty (CPU), Chinese climate uncertainty (CU), and the US climate policy uncertainty index (UCPU). Employing an autoregressive (AR) model extended with climate uncertainty indicators for forecasting, our empirical findings shed light on the substantial predictive power of CPU and CU over green indices while highlighting the limited effectiveness of UCPU.

Economic Policy Uncertainty, Accounting Robustness and Commercial Credit Supply - A Big Data Analysis Based on Accounts Receivable

Abstract In this paper, a two-dimensional panel data model of economic policy uncertainty is investigated based on the individual fixed effects of panel quantile regression, and a nonparametric panel model with individual fixed effects is established. The unfolding of nonparametric penalized spline and the introduction of Bayesian in stratified quantile are utilized to construct regression models applicable to accounting robustness, respectively. In the empirical study, the economic policy uncertainty index, accounting robustness and commercial credit supply are measured respectively. The annual data of China’s Shenzhen and Shanghai A-share listed companies during the period from 2012 to 2021 were selected as the research basis, and Bayesian quantile regression was made on the basis of correlation analysis. The coefficient of commercial credit supply is found to be -0.0821, and the variable RD1 is negatively correlated with economic policy uncertainty. This regression result confirms hypothesis H1 of this paper, suggesting that private firms invest less in innovation when economic policy uncertainty is higher. In the test of economic policy uncertainty by type, the regression coefficients of RD2, EPU, and SIZE are negative, respectively -0.0368, −0.2124, and -0.1458, which indicates that fiscal policy, monetary policy, and exchange rate and capital account policy uncertainty are negatively correlated with the supply of business credit to enterprises. Based on this correlation, this study provides guidance for the development of business credit for enterprises.

A news-based climate policy uncertainty index for China

Climate policies can have a significant impact on the economy. However, these policies have often been associated with uncertainty. Quantitative assessment of the socioeconomic impact of climate policy uncertainty is equally or perhaps more important than looking at the policies themselves. Using a deep learning algorithm—the MacBERT model—this study constructed indices of Chinese climate policy uncertainty (CCPU) at the national, provincial and city levels for the first time. The CCPU indices are based on the text mining of news published by a set of major newspapers in China. A clear upward trend was found in the indices, demonstrating increasing policy uncertainties in China in addressing climate change. There is also evidence of clear regional heterogeneity in subnational indices. The CCPU dataset can provide a useful source of information for government actors, academics and investors in understanding the dynamics of climate policies in China. These indices can also be used to investigate the empirical relationship between climate policy uncertainty and other socioeconomic factors in China.

İklim Politika Belirsizliği ve Enflasyon İlişkisi: ABD Örneği

In this study, the relationship between climate policy uncertainty and inflation in the 1990-2021 period in the USA was examined with the help of the ARDL Bound test, using Real GDP, total labor force, and carbon emissions as control variables. The climate policy uncertainty index used to measure climate policy uncertainty in the study was obtained from Gavriilidis (2021), and data on other variables were obtained from “the World Bank” and “Our World in Data” databases. The study's findings show a positive and statistically significant relationship between climate policy uncertainty and inflation in the USA in the period under review. Also, carbon emissions and GDP positively affect inflation, and the coefficients are statistically significant. However, although the total labor force positively affected inflation, it was found to be statistically insignificant.

Forecasting US Stock Market Volatility: Evidence from ESG and CPU indices

This study investigates the predictability of U.S. stock market volatility using environmental, social, and governance (ESG) and climate policy uncertainty (CPU) indices based on the Markov-regime GARCH-MIDAS model. Our out-of-sample results show that ESG and CPU information is useful to forecast the U.S. stock market volatility. Notably, the ESG index proved to be a more powerful predictor for volatility estimation. Lastly, we ensure the reliability of the study's results through various robustness checks, including the model confidence set (MCS) method. These results suggest that investors and policymakers should consider carefully the impact of ESG and CPU risk on financial decision making and policy realms.

The influence of the Ukraine-Russia conflict on renewable and fossil energy price cycles

This study investigates the impact of the Ukraine-Russia conflict on energy cycles by extending a business cycle-based approach in the energy sector. We employ the Markov Switching Bayesian Vector Autoregressive (MS-BVAR) model to derive filtered probabilities that represent energy cycles. By utilizing the Russia Economic Policy Uncertainty Index and dummy variables derived from Google search data as conflict indicators, we conduct regression analysis and examine the generalized impulse response function to assess the effects of the conflict on energy cycles. Our research reveals notable differences in renewable and fossil energy price cycles. The renewable price cycle exhibits greater persistence, indicating a limited response to the conflict shock. In contrast, the fossil energy price cycle exhibits more significant and enduring adjustments in high- and low-volatility regimes. These findings highlight the heterogeneous impacts of the Ukraine-Russia conflict on the fossil energy market, indicating potential disruptions in supply chains and market sensitivities. Notably, fossil energy prices demonstrate higher responsiveness to the Ukraine-Russia conflict across market conditions.

Economic policy uncertainty and the Greek economic crisis

PurposeThe authors construct an index of economic policy uncertainty (EPU) for Greece using textual analysis and analyze its role in the 10-year Greek economic crisis.Design/methodology/approach To identify the causal relationship between various measures of economic activity and EPU in Greece, the authors use a sophisticated “shock-based” structural vector autoregressive identification scheme. Additionally, the authors use two additional models to ensure the robustness of the results.Findings EPU is negatively associated with domestic economic activity and economic sentiment, and positively with bond credit spreads. EPU is also estimated to have prolonged the crisis even in periods when macroeconomic imbalances were cured. The results are robust across various model specifications and different proxies of economic activity.Originality/value Brunnermeier (2017) observed that uncertainty may be central to understanding the evolution of the Greek crisis. Yet little attention has been paid to policy uncertainty in the existing long and growing literature on the Greek crisis. The authors attempt to fill this gap.

Nexus among Indian business cycle–financial cycle and Policy Uncertainty Index

Nexus among Indian business cycle–financial cycle and Policy Uncertainty Index

How does economic policy uncertainty affect corporate green innovation? Evidence from China

Macroeconomic policies profoundly affect companies’ behavior. Data on China’s Economic Policy Uncertainty (EPU) Index and A-share listed companies from 2007 to 2019 were selected to investigate the impact of EPU on corporate green innovation (GI). We find that (i) EPU promotes both substantive green innovation (SUGI) and strategic green innovation (STGI). (ii) Property rights, government subsidies (GSs), industry competition, and industry type have significant moderating effects on the promotion of GI. (iii) EPU promotes GI by forcing companies to increase R&D investment and R&D personnel. (iv) The impact of EPU on GI has a threshold effect of cash flow volatility (CFV). Our findings provide a reference for further guiding enterprises to GI during frequent economic policy changes.

China’s Climate Change Policy Attention and Forestry Carbon Sequestration Growth

Forest carbon sinks play an important role in climate change mitigation and adaptation. The Chinese government has demonstrated its proactive approach to addressing climate change by setting development targets for low-carbon transformation and making solemn commitments to peak carbon emissions before 2030 and to achieve carbon neutrality by 2060. In this article, the Chinese Government’s Work Reports and Five-Year Plans are used to construct an index named China’s Climate Change Policy Attention (CCPA), which reflects the government’s emphasis on climate change and forestry in China. This article aims to examine the impact of CCPA, the adjusted Climate Policy Uncertainty (CPU) index from the U.S., and the Economic Policy Uncertainty (EPU) index from China on the Chinese forest carbon stocks (FCS), comprehensively. On this basis, we are interested in clarifying the channels by which CCPA promotes the growth of forest carbon sequestration in China. Specifically, panel data from 30 provinces in China from 2000 to 2017 are used for empirical analysis, and the following results are obtained: (1) The baseline regression indicates that CCPA significantly promotes the growth of FCS, while CPU or EPU inhibits its growth. (2) The interactive regression shows that the effect of CCPA on the growth of FCS can mitigate the inhibiting impact of CPU or EPU. (3) Mediation analysis documents that CCPA promotes FCS growth by increasing the forest tending area, expanding the existing forest area, increasing renewable energy consumption, and improving green investment. (4) Heterogeneity analysis reveals a clear differentiation in the effect of CCPA on FCS under different situations. Finally, policy implications are proposed based on the results. This article is expected to provide a theoretical basis for the Chinese government to develop relevant policies from the perspective of promoting FCS growth.

Quantifying Health Policy Uncertainty in China Using Newspapers: Text Mining Study.

From the severe acute respiratory syndrome (SARS) outbreak in 2003 to the COVID-19 pandemic in 2019, a series of health measures and policies have been introduced from the central to the local level in China. However, no study has constructed an uncertainty index that can reflect the volatility, risk, and policy characteristics of the health environment. We used text mining analysis on mainstream newspapers to quantify the volume of reports about health policy and the total number of news articles and to construct a series of indexes that could reflect the uncertainty of health policy in China. Using the Wisenews database, 11 of the most influential newspapers in mainland China were selected to obtain the sample articles. The health policy uncertainty (HPU) index for each month from 2003 to 2022 was constructed by searching articles containing the specified keywords and calculating their frequency. Robustness tests were conducted through correlation analysis. The HPU index was plotted using STATA (version 16.0), and a comparative analysis of the China and US HPU indexes was then performed. We retrieved 6482 sample articles from 7.49 million news articles in 11 newspapers. The China HPU index was constructed, and the robustness test showed a correlation coefficient greater than 0.74, which indicates good robustness. Key health events can cause index fluctuations. At the beginning of COVID-19 (May 2020), the HPU index climbed to 502.0. In December 2022, China's HPU index reached its highest value of 613.8 after the release of the "New Ten Rules" pandemic prevention and control policy. There were significant differences in HPU index fluctuations between China and the United States during SARS and COVID-19, as well as during the Affordable Care Act period. National health policy is a guide for health development, and uncertainty in health policy can affect not only the implementation of policy by managers but also the health-seeking behavior of the people. Here, we conclude that changes in critical health policies, major national or international events, and infectious diseases with widespread impact can create significant uncertainty in China's health policies. The uncertainty of health policies in China and the United States is quite different due to different political systems and news environments. What is the same is that COVID-19 has brought great policy volatility to both countries. To the best of our knowledge, our work is the first systematic text mining study of HPU in China.

The effects of high uncertainty risk on international stock markets

AbstractWe conduct an international analysis of the cross-sectional risk premiums of uncertainty risk factors in addition to traditional risk factors. We consider international stock markets in five regions separately. We measure uncertainty by the local and US economic policy uncertainty indices. Economic policy uncertainty risk has negative risk premiums. This implies that investors get lower returns for assets with high uncertainty betas. We further analyze a nonlinear relationship between excess returns and uncertainty risk by adding the downside economic policy uncertainty risk factor which captures high levels of uncertainty, similar to downside market risk. The downside uncertainty risk factor has negative risk premiums.

The Impact of Economic Policy Uncertainty on the Performance of New Energy Firms

In China, the development of a new energy sector relies heavily on economic policies. In the strategic context of sustainable development, it possesses profound theoretical and practical values to objectively and quantitatively explore the influences of economic policies on the new energy firms’ performance. This paper proposes three hypotheses after conducting a theoretical analysis. This paper regards China’s economic policy uncertainty index (EPU) as a policy shock indicator and utilizes the panel data of listed firms in China’s new energy sector from 2008 to 2021 to explore the influence of EPU on China’s new energy enterprises’ performance. The research results show that EPU exerts a negative influence on the performance of new energy companies, and this negative impact is robust after the replacement of the explanatory variables. On this basis, we further investigate the influence of EPU on the new energy enterprises’ performance in different ownership systems and different regions. It also shows that the impact of economic uncertainty is more obvious on non-state-owned enterprises and the western and central regions. Finally, countermeasures are proposed based on the study results.

Uncertainty and the effectiveness of fiscal policy in the United States and Brazil: SVAR approach

AbstractThe article analyses the interference of uncertainty on the effectiveness of fiscal policy. This issue is investigated through the lens of a Structural Vector Auto Regressive (SVAR) model for the United States and Brazil. Imposing government spending shocks, the models highlight a positive effect on economic activity. The results suggest Keynesian effects on consumption and GDP. To assess the effects of uncertainty, the models use two indices: the Economic Policy Uncertainty Index (EPU) and the World Uncertainty Index (WUI). The findings indicate that the fiscal effects are considerably less intense when uncertainty reaches high levels, consistent with the Real Options approach. The results suggest that agents are more cautious when the high‐uncertainty overshadows the outline of the economic scenario. In this sense, uncertainty disturbs agents' decisions and decreases consumption, investment and economic activity.

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.

EXAMINATION OF THE IMPACTS OF CRYPTOCURRENCY UNCERTAINTY ON EXCHANGE-TRADED FUNDS

In this paper, we use quantile-based analysis and nonlinear conditional autoregressive value-at-risk (CAViaR) model to investigate how cryptocurrency price and policy uncertainty indexes affect exchange traded funds (ETFs) investing in equity securities of companies operating in various disruptive innovation sectors and related to digital assets and blockchain technology. Results of the quantile-on-quantile (QQ) estimates and quantile regression reveal that cryptocurrency price and policy uncertainty generally have a negative impact on the globally traded ETFs suggesting that the changes in cryptocurrency uncertainty lead to destabilizing effects in the ETF market. Moreover, we find that the impact of cryptocurrency uncertainty is asymmetric depending on each quantile of ETF returns even though each ETF is influenced in the same way by each uncertainty index, indicating that cryptocurrency price uncertainty and cryptocurrency policy uncertainty have common effects on the ETF market. A linear quantile causality analysis indicated that there is evidence of a significant causality running from the considered uncertainty indexes to the ETF returns, revealing that cryptocurrency price and policy uncertainty have a significant information value in explaining expected ETF returns. On the other hand, we find that linear quantile models outperform nonlinear CAViaR models in quantiles that are only moderate.

An Investigation of the Predictability of Uncertainty Indices on Bitcoin Returns

Policymakers and portfolio managers pay keen attention to sources of uncertainties that drive asset returns and volatility. The influence of uncertainty on Bitcoin has the potential to drive fluctuations in the entire cryptocurrency market. We investigate the predictability of thirteen economic policy uncertainty indices on Bitcoin returns. Using the Random Forest machine learning algorithm, we find that Singapore’s economic policy uncertainty (EPU) has the strongest predictive power on Bitcoin returns, followed by financial crisis (FC) uncertainty and world trade uncertainty (WTU). We further categorize these uncertainties into different groups. Interestingly, the predictability of uncertainty indices on Bitcoin returns within the international trade group is stronger compared to other uncertainty categories. Additionally, we observed that internet-based uncertainty measures have more predictive power of Bitcoin returns than newspaper- and report-based measures. These results are robust using various additional machine learning methods. We believe that these findings could be valuable for policymakers and portfolio managers when making decisions related to uncertainty drivers of cryptocurrency prices and returns.