The Causal Relationship between Economic Policy Uncertainty and Stock Market: A Panel Data Analysis

Wu, Tsung-Pao; Liu, Shubing; Hsueh, Shun-Jen

doi:10.1080/10168737.2015.1136668

“…1 A considerable literature has developed examining the connection between indices of economic policy uncertainty and stock markets in various countries: Mensi et al (2014) for BRICS; Arouri and Roubaud (2016) for the US and China; Li et al (2016) for China and India; Dakhlaoui and Aloui (2016) for BRIC over time; Gao and Zhang (2016) for the UK; Wu et al (2016) for a panel of nine countries ;and Chang et al (2015) for seven OECD countries. The implications of economic policy uncertainty for sectoral returns has also been examined: Lean and Nguyen (2014) for sustainable investment returns in Asia Pacific and North America; Antonakakis et al (2016) for U.S. sustainable investments; Balcilar et al (2016) for gold returns and volatility; Kang et al (2017) global oil and gas companies.…”

Section: Oil Price Shocks and Policy Uncertainty: New Evidence On Thementioning

confidence: 99%

Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and Non-US Oil Production

Kang

¹

,

Ratti

²

,

Vespignani

³

2017

View full text Add to dashboard Cite

Important interaction has been established for US economic policy uncertainty with a number of economic and financial variables including oil prices. This paper examines the dynamic effects of US and non-US oil production shocks on economic policy uncertainty using a structural VAR model. Such an examination is motivated by the substantial increases in US oil production in recent years with implications for US political and economic security. Positive innovations in US oil production are associated with decreases in US economic policy uncertainty. The economic forecast interquartile ranges about the US CPI and about federal/state/local government expenditures are particularly sensitive to innovations in US oil supply shocks. Shocks to US oil supply disruption causes rises in the CPI forecast uncertainty and accounts for 21% of the overall variation of the CPI forecaster disagreement. Dis-aggregation of oil production shocks into US and non-US oil production yield novel results. Oil supply shocks identified by US and non-US origins explain as much of the variation in economic policy uncertainty as structural shocks on the demand side of the oil market.JEL classification: E44, G12, Q43

show abstract

“…Theoretically, a US oil supply shock directly influences US income, 1 A considerable literature has developed examining the connection between indices of economic policy uncertainty and stock markets in various countries: Mensi et al (2014) for BRICS; Arouri and Roubaud (2016) for the US and China; Li et al (2016) for China and India; Dakhlaoui and Aloui (2016) for BRIC over time; Gao and Zhang (2016) for the UK; Wu et al (2016) for a panel of nine countries ;and Chang et al (2015) for seven OECD countries. The implications of economic policy uncertainty for sectoral returns has also been examined: Lean and Nguyen (2014) for sustainable investment returns in Asia Pacific and North America; Antonakakis et al (2016) for U.S. sustainable investments; Balcilar et al (2016) for gold returns and volatility; Kang et al (2017) global oil and gas companies.…”

Section: Oil Price Shocks and Policy Uncertainty: New Evidence On Thementioning

confidence: 99%

Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and non-US Oil Production

Kang

¹

,

Ratti

²

,

Vespignani

³

2017

gwp

View full text Add to dashboard Cite

Important interaction has been established for US economic policy uncertainty with a number of economic and financial variables including oil prices. This paper examines the dynamic effects of US and non-US oil production shocks on economic policy uncertainty using a structural VAR model. Such an examination is motivated by the substantial increases in US oil production in recent years with implications for US political and economic security. Positive innovations in US oil production are associated with decreases in US economic policy uncertainty. The economic forecast interquartile ranges about the US CPI and about federal/state/local government expenditures are particularly sensitive to innovations in US oil supply shocks. Shocks to US oil supply disruption causes rises in the CPI forecast uncertainty and accounts for 21% of the overall variation of the CPI forecaster disagreement. Dis-aggregation of oil production shocks into US and non-US oil production yield novel results. Oil supply shocks identified by US and non-US origins explain as much of the variation in economic policy uncertainty as structural shocks on the demand side of the oil market.

show abstract

“…There has been an influx of studies relating EPU with microeconomic as well as macroeconomic indicators (Aizenman and Marion, 1993;Kang et al, 2014;Wang et al, 2014;Colombo, 2013;Antonakakis et al, 2014;Krol, 2014;Caggiano et al, 2017). Recent studies that analyzed the macroeconomic implications of EPU have employed the news-based variant of the EPU measure in order to uncover the nature of the underlying relationship that may exist between EPU and industrial production, unemployment, interest rates (Colombo,2013;Baker et al, 2016;Caggiano et al, 2017), exchange rates (Beckmann and Czudaj, 2017;Krol, 2014;Balcilar et al, 2016a),and stock markets (Arouri et al, 2016;Wu et al, 2016;Li et al, 2016;Sum, 2012;Karnizova and Li, 2014). The news-based variant of the EPU was originally employed by Baker et al (2016).…”

Section: Introductionmentioning

confidence: 99%

The Role of Economic Policy Uncertainty in Predicting Output Growth in Emerging Markets: A Mixed-Frequency Granger Causality Approach

Balcılar

¹

,

Ike

²

,

Gupta

³

2020

Emerging Markets Finance and Trade

View full text Add to dashboard Cite

We employ time series data to empirically determine the causal relationship between economic policy uncertainty and the GDP growth rates of seven emerging market economies while controlling for the effect of oil price, interest rates and the CPI. Due to differences in sampling frequencies between the GDP series and other variables, a multi-horizon mixed frequency VAR model is employed. This model fully exploits the mixed frequency Granger causality test in order to circumvent the distorting effects of temporal aggregation. The empirical results show a strong statistical evidence for direct causality flowing from economic policy uncertainty (EPU) to GDP in Chile, India and Mexico while a weaker statistical evidence is found for Brazil, Colombia and Russia. For comparative analysis, the low frequency Granger causality test is also employed and strong statistical evidence of direct causality flowing from EPU to GDP in Brazil, Chile, India, Mexico and Russia is uncovered. Analyzing the causal patterns uncovered in both specifications show that the low frequency Granger causality results are less intuitively appealing than those that are obtained from the mixed frequency Granger causality test. The results have empirical as well as policy implications which are discussed.

show abstract

The Causal Relationship between Economic Policy Uncertainty and Stock Market: A Panel Data Analysis

Cited by 58 publications

References 21 publications

Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and Non-US Oil Production

Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and Non-US Oil Production

Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and non-US Oil Production

The Role of Economic Policy Uncertainty in Predicting Output Growth in Emerging Markets: A Mixed-Frequency Granger Causality Approach

Contact Info

Product

Resources

About