Economic policy uncertainty and financial stability–Is there a relation?

By D. Phan, B. N. Iyke, S. Sharma, Yoga Affandi. Economic Modelling, 2021

348 citations recorded by the source corpus.

Abstract This paper investigates the impact of economic policy uncertainty on financial stability. Using data for 23 countries over the period of 1996 to 2016, we show that the impact is negative and statistically significant. Economically, a unit standard deviation increase in economic policy uncertainty decreases financial stability by between 2.66% and 7.26% of its sample mean. The negative impact of economic policy uncertainty on financial stability is stronger for countries with higher competition, lower regulatory capital, and smaller financial systems. We show that our finding is robust using bank-level data and different constructions of global panel portfolios, and controlling for Z-score skewness, the Global Financial Crisis, and for endogeneity.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/be93879938bfcdc7717c9bc84586e9b5e88a9538

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Yongjia Lin
2. Xiaolan Fu
3. X. Fu

In Finance

1. Yongjia Lin
2. Xiaolan Fu
3. X. Fu
4. Yong Tan

Citations in the corpus

• Coronavirus and Oil Price Crash (2020, neutral): “In fact, even the economic policy uncertainty represents a reliable cause of financial markets volatility as shown by Antonakakis et al. (2013), Li et al. (2019), Mei et al. (2018), Phan et al. (2020), Su et al., (2019), Tiwari et al. (2019), Zhenghui and Junhao (2019).”
• Varieties in state capitalism and corporate innovation: Evidence from an emerging economy (2021, methodology): “Following Phan et al. (2021), EPU is measured by the Economic Policy Uncertainty Index constructed by Baker et al. (2016).”