Policy Uncertainty Research Articles

Global environmental sustainability: the role of economic, social, governance (ECON-SG) factors, climate policy uncertainty (EPU) and carbon emissions

Global environmental sustainability: the role of economic, social, governance (ECON-SG) factors, climate policy uncertainty (EPU) and carbon emissions

Economic policy uncertainty, energy consumption and environmental sustainability targets

Energy systems face serious difficulties due to economic policy uncertainty, which affects consumption trends and makes the shift to sustainability more difficult. While adjusting for economic growth and carbon emissions, this study examines the dynamic relationship between economic policy uncertainty and energy consumption (including renewable and nonrenewable) in China from 1985Q1 to 2023Q4. The research reveals the frequency-specific and time-varying relationships between these variables by employing sophisticated techniques such as Wavelet Cross-Quantile Correlation (WCQC) and Partial WCQC (PWCQC). Economic policy uncertainty and energy consumption do not significantly correlate in the short term; however, over the long term, economic policy uncertainty positively correlates with renewable energy consumption at medium-to-upper quantiles, indicating that it may play a role in encouraging investments in sustainable energy. On the other hand, EPU has a negative correlation with nonrenewable energy usage at lower quantiles, indicating a slow move away from fossil fuels. These results are confirmed by robustness testing with Spearman-based WCQC techniques. The study ends with policy recommendations to maximize economic policy uncertainty’s long-term impacts on renewable energy, reduce dependency on fossil fuels, and attain environmental and energy sustainability in China.

TFR: A Temporal Feature‐Refined Multi‐Stage Carbon Price Forecasting

ABSTRACTAccurate carbon price forecasting is crucial for effective carbon market analysis and decision‐making. We propose a novel Temporal Feature‐Refined (TFR) model to address the challenges of complex dependencies and high noise levels in carbon price time series data. The TFR model integrates Complete Ensemble Empirical Mode Decomposition with Adaptive Noise (CEEMDAN) for signal decomposition, an Autoencoder for feature optimization, and a Temporal Convolutional Network (TCN) for capturing long‐range temporal dependencies. It incorporates both traditional economic factors and unconventional determinants such as air quality, policy uncertainty, and public sentiment. Experiments on the Shanghai carbon trading market demonstrate that the TFR model significantly outperforms existing methods, achieving an 83.96% improvement in MAE over Support Vector Regression (SVR) and up to a 65.56% improvement over Long Short‐Term Memory (LSTM) networks. Further analyses, including comparisons with different decomposition models and ablation studies, confirm the effectiveness of each component and the overall model.

Informativeness of the federal reserve chair communication’s sentiment on the monetary policy uncertainty

Informativeness of the federal reserve chair communication’s sentiment on the monetary policy uncertainty

FX Comovements and Their Economic Determinants

Abstract This article models high- and low-frequency dynamic components of FX excess return correlations and examines their relationship with economic fundamentals. A factor pricing model with time-varying betas is used to characterize these correlations. From the low-frequency components, an aggregate comovement measure is derived. This component is countercyclical relative to the U.S., as it is negatively related to economic growth and positively related to both inflation volatility and economic policy uncertainty. Idiosyncratic volatilities also drive currency comovements. I examine their cross-sectional variation and find significant impacts of inflation levels, monetary policy variables, real output growth, trade, and capital flows.

The Effects of Global Economic Policy Uncertainties on Manufacturing Industry Exports: The Case of Türkiye

In this paper, the relationship between Türkiye’s manufacturing industry exports and global economic policy uncertainty (GEPU) is examined using monthly data from 2013:01 to 2023:12. Estimations performed using the ARDL approach indicate that GEPU does not significantly affect manufacturing industry exports in Türkiye. This finding suggests that Turkish manufacturing industry exporters maintain stable and long-term trade relations. Consistent with expectations, foreign demand positively influences exports, while the appreciation of the Turkish Lira has a negative impact. To enhance manufacturing industry exports, it is recommended to strengthen commercial and diplomatic ties, enhance international cooperation, mitigate exchange rate risks through expanded hedging mechanisms, and invest in human capital and technology.

Dynamic effects of internal and external policy uncertainty on consumption: exploring with the perspective of trade shares

PurposeMacroeconomic policy shocks have consistently provoked debate across global economies, given their significant effect on economic growth, particularly by affecting markets and employment through changes in consumer behavior. Policymakers need proper abatement measures for both internal and external uncertainties.Design/methodology/approachThe present study aims to analyze the impacts of internal and external policy uncertainty on consumption in 22 countries with their trading shares with each other from 2010q1 to 2021q4. In this regard, for external policy shocks the study constructed an index for each country based on their bilateral trade shares a weighted average of internal policy uncertainty.FindingsBy applying the panel ARDL, a U-shaped relationship between consumption and policy shocks is observed. Further, for the county wise assessment of internal and external policy uncertainty on domestic consumption is assessed and it has shown to be negative in most of countries. Gross effects are also revealed where internal policy shocks have more influence than external policy shocks as countries can diversify external risks from their trade portfolio. Other determinates of consumption like income and exchange rate have positive effects, while interest rate and inflation have negative influences.Originality/valueThe outcomes provide internal and external policy insights for consumption stabilization.

Does trade uncertainty in US and China influence Indian banking stability: An analysis through the lens of banking regulation and compliance

Purpose A recent literature has documented the real effect of Trade Policy Uncertainty (TPU) on trade, stock markets and unemployment; however, there is no specific study that has examined how trade uncertainty influences banking sector stability. In this quest, this study aims to bridge this gap by examining the impact of TPU in the USA and China on the stability of the Indian banking sector. Additionally, the study aims to assess the moderating influence of banking regulation and supervision on the aforementioned relationship. Design/methodology/approach To quantify the above objectives, the study uses a robust set of econometric estimates, i.e. system generalised method of moments (Sys-GMM), fixed effect model and pair-wise Granger causality test on the alternative proxies of banking stability from 2000 to 2023. Findings The empirical estimates validate that TPU has a negative impact on the Indian banking stability. Moreover, the impact of the USA. TPU is much more significant on the Indian banking sector’s stability in comparison to the Chinese TPU. The empirical model further suggests that banking regulation and supervision moderate the negative influence of trade uncertainties on the Indian banking sector’s stability and assist in improving it. Finally, the pairwise causality test confirms a unidirectional causal relationship between the TPU in the USA and China and the stability of the Indian banking sector, thereby validating the transmission effect of trade uncertainty on this sector. Originality/value To the best of the author’s study, this study is original and offers useful policy recommendations for understanding the implications of trade uncertainty for banking stability. The study also offers insight to comprehend the role of banking regulation and compliance in mitigating the adverse repercussion of trade uncertainties on the banking sector’s stability.

The Impacts of US State‐Level Economic Policy Uncertainty on US State‐Level Income Distribution: Asymmetric Approach

ABSTRACTThis study aims to expand Bahmani‐Oskooee and Hasanzade's research examining the impact of economic policy uncertainty (EPU) on income inequality in the US states. Our study differs from theirs as we use a newly calculated US state‐level EPU index, whereas they used the US country‐level EPU index in their previous work. While the linear ARDL model finds that the EPU has short‐run effects on GINI in 15 US states, the nonlinear model finds it in 22 US states. Similarly, while the nonlinear model finds that EPU has a long‐run impact on GINI in five US states, the linear model finds it only in one US state. However, when the CSD is allowed, the linear model finds that EPU impacts GINI in five US states in the long run. While our study finds that decreased uncertainty worsens income inequalities in Texas and Washington, Bahmani‐Oskooee and Hasanzade find that uncertainty does not have long‐run effects in these US states. Similarly, while we find that increased uncertainty improves inequality in Virginia, they also find worsening effects in this US state. Empirical findings reveal that state‐level analysis discovers some hidden impacts of the EPU on GINI that we could not find in country‐level analysis.

Economic policy uncertainty and bank stability: the role of digitalization level

ABSTRACT This paper employs quarterly data from 102 Chinese commercial banks spanning from 2017Q1 to 2021Q3. Utilizing a panel fixed-effects model, we scrutinize the impact of digitization on the relationship between economic policy uncertainty and the stability of commercial banks. The main research conclusion is that a higher level of digitization can alleviate the negative effects of economic policy uncertainty on the stability of commercial banks. Further research indicates that digitization achieves this effect by improving borrower selection, reducing the cost of risk management, and enhancing profitability. The mitigating effect of digitization varies across different types of commercial banks, different time periods, and different external environments, with a stronger impact observed on state-owned banks, banks in the post-pandemic period, and banks operating in high external pressure environments. Our research results demonstrate for the first time how digitization enhances banks’ resilience to the impact of economic policy uncertainty, providing insights for financial stability and development.

The Asymmetric Impact of Economic Policy Uncertainty on the Demand for Money in the GCC Countries

Heightened uncertainty in global economic policy has sparked a renewed interest in studying people’s demand for money, particularly to explore whether this demand exhibits asymmetry. In this study, we utilize a nonlinear ARDL approach to investigate the asymmetric effects of global economic policy uncertainty on money demand in each GCC country. Understanding the impact of global economic policy uncertainty on money demand in GCC countries is essential for crafting effective monetary policies, especially given that these countries maintain a pegged exchange rate to the US dollar, leaving them susceptible to economic slowdowns and global business cycles. The findings show varying sensitivity to changes in economic policy uncertainty across GCC countries, with most countries demonstrating asymmetric responses. Policymakers should consider incorporating a nonlinear ARDL model when analyzing money demand in these nations.

Dynamic Comovement between Indian Commodity Futures, Economic Policy Uncertainty and Geopolitical Risk: Evidence from Wavelet Analysis

The present study examines the dynamic comovements between two global risk factors and commodity futures returns. The study considers the daily futures price of nine commodities spanning from January 4th, 2012 to September 29th, 2023. The study employs wavelet analysis and wavelet- based Granger causality tests to analyze dynamic comovement and causal relationship between global risk factors and commodity futures return at different time horizons. The study results show a strong comovement between the US economic policy uncertainty (USEPU) and commodity futures return except for silver and mentha oil. On the other hand, the geopolitical risk (GPR) exhibits a weak relationship with gold, lead, zinc, and energy commodities across all-time frequencies. Further, the Wavelet Granger causality test results provide strong evidence that commodities futures return cause the USEPU in all the time horizons. Followed by the geopolitical risk reports significant evidence that commodities futures return causes GPR in all time horizons.

Threshold Effects of Economic Policy Uncertainty on Corporate Investment

Existing literature vigorously underlines the negative impact of economic policy uncertainty (EPU) on corporate investment. However, earlier empirical studies mostly examined this relationship using linear econometric models. Current study aims to revisit this relationship employing a non-linear Threshold Auto Regressive (TAR) model of Hansen (1999). The study incorporates data from 25 countries ranging 2008 to 2021 comprising 10020 firm-level observations. The study's findings emphasize the nonlinear relationship between the EPU and corporate investment. The results also find out two EPU thresholds in the regression relationship. Beyond the thresholds firms’ investments behaviors significantly change. The robustness checks also confirm that our results remain consistent even upon utilizing two step system GMM model. The findings hold important implications for policymakers and businesses, emphasizing the need of robust economic policies for corporate investment.

Reevaluating the Time-varying Safe Haven Status of Precious Metals: Novel Insights from Economic Policy Uncertainties in the USA and China

Reevaluating the Time-varying Safe Haven Status of Precious Metals: Novel Insights from Economic Policy Uncertainties in the USA and China

Macroeconomic Factors and their Impact on Stock Market Volatility: Trends, Drivers, and Policy Recommendations

The study investigates how key macroeconomic factors contribute to stock market volatility from 2015 to 2024, a period marked by significant economic fluctuations and policy shifts. Focusing on variables such as GDP growth, inflation, interest rates, and economic policy uncertainty, this research examines their impact on market stability across developed and emerging economies. Using quantitative analysis and secondary data, the study highlights periods of heightened volatility in response to economic shocks, particularly around events like the COVID-19 pandemic and subsequent policy responses. Findings reveal that rising inflation and policy uncertainty are primary drivers of volatility, often exacerbating market instability during economic downturns. Additionally, GDP growth and interest rate changes are shown to influence investor sentiment and asset pricing, underscoring the importance of macroeconomic stability for market resilience. While these macroeconomic fundamentals are crucial in understanding market dynamics, this study also addresses challenges in maintaining stability, such as varying policy responses and global economic interdependence, emphasizing the need for adaptive policy frameworks to mitigate volatility risks. This analysis contributes to the broader understanding of how macroeconomic factors shape financial markets, offering valuable insights for policymakers and investors aiming to navigate uncertain economic landscapes.

Sectoral responses to economic policy uncertainty and geopolitical risk in the US stock market

We examine the impact of economic policy uncertainty and geopolitical risk on various industries, highlighting their asymmetric effects on sectoral volatility. Furthermore, we investigate the differential effects of economic policy uncertainty and geopolitical risk on sectoral volatility, distinguishing between good and bad volatility responses. We find an asymmetric relationship between economic policy uncertainty and geopolitical risk in these industries, with economic policy uncertainty generally exerting a stronger impact on sector-specific volatility compared to geopolitical risk. During normal circumstances since the 2010s, the influence of geopolitical risk on sector-specific volatility has been relatively insignificant. However, both economic policy uncertainty and geopolitical risk have played significant roles in affecting multiple sectors during certain crisis periods, with geopolitical risk demonstrating short-term effects. These findings have important implications for both investors and policymakers. Investors can time positions using insights on policy uncertainty and geopolitical risk, while policymakers can identify vulnerable sectors.

The influence of uncertainty on commodity futures returns and trading behaviour

We utilise measures of economic policy uncertainty (EPU) and geopolitical risk (GPR), as well as commitments of traders (COTs), to investigate the influence of uncertainty on commodity markets. We find that uncertainty has a significant influence on returns, but the direction of the response is due to whether uncertainty emanates from demand shocks (EPU) or supply shocks (GPR). Uncertainty is also positively related to volatility and trading volume. Importantly, we also find that net positions of both commercial and non-commercial traders are influenced by uncertainty levels. Examination of high uncertainty and recessionary periods indicates that our results are state dependent.

Foreign economic policy uncertainty and U.S. equity returns

Foreign economic policy uncertainty and U.S. equity returns

How does climate policy uncertainty shape corporate investment behavior?

In the context of global carbon emission reduction, the uncertainty brought by climate policy would affect the corporate investment behavior. Our study explores the impact of climate policy uncertainty on corporate investment by using a sample of Chinese A-share listed companies in Shanghai and Shenzhen from 2008 to 2022. We find that when climate policy uncertainty increases, the corporate investment will decrease, with state-owned enterprises and high-carbon-emitting companies being more significantly affected. In addition, the mechanism analysis indicates that managerial climate attention and good ESG ratings can mitigate the negative impact of climate policy uncertainty on the corporate investment. Furthermore, major public emergency as the COVID-19 pandemic significantly amplifies the effects of climate policy uncertainty to corporate investment. Our results remain valid after a series of robustness tests, providing insights for corporate investment behavior in the face of climate policy uncertainty.

External trade policy uncertainty, corporate risk exposure, and stock market volatility

External trade policy uncertainty, corporate risk exposure, and stock market volatility