Economic Policy Uncertainty in the Euro Area: An Unsupervised Machine Learning Approach

Azqueta-Gavaldón, Andrés; Hirschbühl, Dominik; Onorante, Luca; Sáiz, Lorena

doi:10.2139/ssrn.3516756

Cited by 12 publications

(9 citation statements)

References 14 publications

(23 reference statements)

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“…In this model, each document can be viewed as a mixture of a small set of topics. Azqueta-Gavaldón et al [31] merged topics under the eight sectors of uncertainty initially indicated by Baker et al [1].…”

Section: Economic Policy Uncertainty Measuresmentioning

confidence: 96%

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Measuring Economic Policy Uncertainty Using an Unsupervised Word Embedding-based Method

Kaveh-Yazdy

Zarifzadeh

2021

SSRN Journal

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Section: Economic Policy Uncertainty Measuresmentioning

confidence: 96%

“…Azqueta-Gavaldón et al [31] tried to overcome the supervision requirements in measuring uncertainty by adopting unsupervised topic modeling. They cleaned the documents, removed stopwords, and applied a Latent Dirichlet Allocation (LDA) method.…”

Section: Economic Policy Uncertainty Measuresmentioning

confidence: 99%

Measuring Economic Policy Uncertainty Using an Unsupervised Word Embedding-based Method

Kaveh-Yazdy

Zarifzadeh

2021

SSRN Journal

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“…14 This newspaper-based index is chosen on the grounds of it capturing a broad definition of uncertainty (as opposed to strictly focusing on macroeconomic or financial uncertainty). A comparison of uncertainty indices for the EA and its countries is provided in Rossi and Sekhposyan (2017) or Azqueta-Gavaldón et al (2020). Since the index shows upward trending behavior in its raw format, we detrend and standardize it prior to including it in our model (that is, the resulting measure has zero mean and unit variance).…”

Section: Real Financial and Survey-based Measuresmentioning

confidence: 99%

On the effectiveness of the European Central Bank's conventional and unconventional policies under uncertainty

Hauzenberger¹,

Pfarrhofer²,

Stelzer³

2020

Preprint

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In this paper, we investigate the effectiveness of conventional and unconventional monetary policy measures by the European Central Bank (ECB) conditional on the prevailing level of uncertainty. To obtain exogenous variation in central bank policy, we rely on high-frequency surprises in financial market data for the euro area (EA) around policy announcement dates. We trace the dynamic effects of shocks to the short-term policy rate, forward guidance and quantitative easing on several key macroeconomic and financial quantities alongside survey-based measures of expectations. For this purpose, we propose a Bayesian smooth-transition vector autoregression (ST-VAR). Our results suggest that transmission channels are impaired when uncertainty is elevated. While conventional monetary policy is less effective during such periods, and sometimes also forward guidance, quantitative easing measures seem to work comparatively well in uncertain times.

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“…This study employs a sample of 5,223 firm-quarter observations on German-listed firms belonging to 24 business sectors. According to Azqueta-Gavaldon et al (2020), uncertainty exerts a stronger impact on investment in Germany than in other European countries. Moreover, the German economy shows greater sensitivity to the recent regional geopolitical threats, more specifically to migration fears related to the Arab spring, more specifically to wars in Syria and Libya, the annexation of Crimea by the Russian Federation, the terrorist attacks in Paris, the USA-Iran political and military tensions in addition to the USA-China international trade tension.…”

Section: Introductionmentioning

confidence: 99%

Geopolitical uncertainty and the cost of debt financing: the moderating role of information asymmetry

Mokdadi,

Saadaoui

2023

JRF

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PurposeThis paper aims to study the impact of geopolitical uncertainty on corporate cost of debt and the moderating role of information asymmetry between creditors and borrowing firms.Design/methodology/approachThis study uses 5,223 firm-quarter observations on German-listed firms spanning 2010:Q1–2021:Q4. This study regresses the cost of debt financing on the geopolitical risk, accounting quality and other control variables. Information asymmetry is measured using the performance-matched Jones-model discretionary accrual and the stock bid-ask spread. It uses interaction terms to check if information asymmetry moderates the impact of geopolitical uncertainty on the cost of debts and control for the moderating role of business risk. For the sake of robustness check, it uses long-term cost of debt and bond spread as alternative dependent variables. In addition, this study executes instrumental variables regression and propension score matching to control for potential endogeneity problems.FindingsEstimation results show that geopolitical uncertainty exerts a positive impact on the cost of debt. This impact is found to be more important on the cost of long-term debts. Information asymmetry is found to exacerbate the positive impact of geopolitical risk on the cost of debt. These results are robust to the change of the dependent variable and to the mitigation of potential endogeneity. At high levels of information asymmetry, this impact is more important for firms belonging to “Transportation”, “Automobiles and auto parts”, “Chemicals”, “Industrial and commercial services”, “Software and IT services” and “Industrial goods” business sectors.Research limitations/implicationsGeopolitical uncertainty should be seriously considered when setting strategies for corporate financial management in Germany and similar economies that are directly exposed to geopolitical risks. Corporate managers should design a comprehensive set of corporate policies to improve their transparency and accountability during increasing uncertainty. Policymakers are required to implement innovative monetary and fiscal policies that take into consideration the heterogeneous impact of geopolitical uncertainty and information transparency in order to contain their incidence on German business sectors.Originality/valueDespite its relevance to corporate financing conditions, little is known about the impact of geopolitical uncertainty on the cost of debt financing. To the best of the authors’ knowledge, there is still no empirical evidence on how information asymmetry between creditors and borrowing firms shapes the impact of geopolitical uncertainty on the cost of debt. This paper tries to fill this gap by interacting two measures of information asymmetry with geopolitical uncertainty. In contrast with previous studies, this study shows that the impact of geopolitical uncertainty on the cost of debt is non-linear and heterogeneous. The results show that the impact of geopolitical uncertainty does not exert the same impact on the cost of debt instruments with different maturities. This impact is found to be heterogeneous across business sectors and to depend on the level of information asymmetry.

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Economic Policy Uncertainty in the Euro Area: An Unsupervised Machine Learning Approach

Cited by 12 publications

References 14 publications

Measuring Economic Policy Uncertainty Using an Unsupervised Word Embedding-based Method

Measuring Economic Policy Uncertainty Using an Unsupervised Word Embedding-based Method

On the effectiveness of the European Central Bank's conventional and unconventional policies under uncertainty

Geopolitical uncertainty and the cost of debt financing: the moderating role of information asymmetry

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