Role Of Policy Uncertainty Research Articles

Role of Monetary Policy in Asset Price Inflation: A Comparative Study of Developed and Developing Economies

This study examined the relationship between monetary policy and asset price inflation in developed and developing economies, focusing on Pakistan. Using data from 2010-2024, the research employed multivariate GARCH and causality models to analyze the impact of various monetary policy tools on stock market indices and real estate prices. The findings revealed significant differences in economic policy's transmission mechanisms and effectiveness in influencing asset prices between developed and developing economies. In Pakistan, interest rate changes were found to have a more pronounced effect on stock market volatility than real estate prices. The study also highlighted the challenges developing economies face in implementing effective monetary policies to manage asset price inflation without compromising economic growth. This research is particularly important as it provides crucial insights for policymakers in developing economies like Pakistan, where the interplay between monetary policy and asset prices can have significant implications for financial stability and economic growth. By identifying the asymmetric effects of monetary policy and the role of policy uncertainty, this study contributes to developing more effective and targeted policy interventions in emerging markets.

Economic policy uncertainty and fund flow performance sensitivity: Evidence from New Zealand

AbstractUtilizing a large sample of actively managed equity funds and a recently developed EPU index for New Zealand, we show that fund flow performance sensitivity decreases with policy uncertainty. The role of policy uncertainty as a determinant of fund flow performance sensitivity is found to be stronger, particularly for funds with global focus, large sized funds, high momentum funds and those with high idiosyncratic volatility and low downside risk. The findings support the argument that high policy uncertainty dampens investors' ability to process information that allows them to distinguish fund manager skill from luck. The results remain strong after accounting for various macroeconomic factors.

Re-examination of risk-return dynamics in international equity markets and the role of policy uncertainty, geopolitical risk and VIX: Evidence using Markov-switching copulas

This study re-examines the empirical relationship between risk and return from 1994m12 to 2020m08 in fifteen international equity markets employing the novel time-varying Markov switching copula models. We provide first-time insightful evidence of time-varying Markov tail dependence structure and dynamics between risk and return in international equity markets. Results show that the dependence structure is positive for USA, UK, Germany, Italy, Brazil, Australia, Taiwan, Canada, Mexico, Japan, France and South Africa and negative for Singapore, India, Japan and China. Finally, we document the effects of policy uncertainty, geopolitical risk and VIX conditional on different markets states.

Markov-switching dependence between artificial intelligence and carbon price: The role of policy uncertainty in the era of the 4th industrial revolution and the effect of COVID-19 pandemic

This paper investigates the dependence structure and dynamics between artificial intelligence (AI) and carbon prices in the era of the 4th industrial revolution. Using the NASDAQ AI price index as a measure of AI and the European Energy Exchange EU emissions trading system (i.e. certificate prices for CO2 emissions) as a measure of carbon prices, we employ time-varying Markov switching copula models from December 2017 to July 2020 that provide evidence of a time-varying Markov tail dependence structure and dynamics between AI and carbon prices. The result shows a negative dependence structure for the return series between AI and carbon prices. However, the relationship is asymmetric, indicating that there is a stronger tail dependence in the lower tails instead of the upper tails. The finding implies that AI is a favourable hedge against carbon prices, therefore indicating the diversification benefits of AI. To understand the issue in detail, we examine the effect of economic policy uncertainty, equity market volatility, and the recent COVID-19 pandemic; we find their negative effect on the dynamic dependence structure between AI and carbon prices at lower and higher quantiles. This evidence offers additional support for the safe-haven ability of AI for carbon prices.