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Cross-category spillover effects of economic policy uncertainty between China and the US: Time and frequency evidence

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  • Guo, Junjie
  • Li, Youshu
  • Shao, Qinglong

Abstract

This study investigates the connectedness among three types of economic policy uncertainties, namely monetary, fiscal, and trade uncertainties, between China and the US. We used the spillover index measurement and the frequency-domain decomposition approach to detect the spillover effects of these categorical uncertainties from both the time- and frequency-domain perspectives. The results suggest that the spillover effects have time-varying characteristics, and some major events could sharply increase the spillover indices. More spillovers are mainly observed in the short-term, whereas the impacts of the medium- and long-term are limited. Furthermore, the leader of the spillover is monetary policy in China, but fiscal policy in the US, the spillovers of all uncertainties mainly exist domestically, apart from the US trade policy uncertainty. These results provide crucial implications for policymakers and investors, who should pay more attention to short-term spillovers and monetary policy uncertainty, which can mitigate their vulnerability to policy uncertainty shocks.

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  • Guo, Junjie & Li, Youshu & Shao, Qinglong, 2022. "Cross-category spillover effects of economic policy uncertainty between China and the US: Time and frequency evidence," Journal of Asian Economics, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:asieco:v:80:y:2022:i:c:s1049007822000227
    DOI: 10.1016/j.asieco.2022.101462
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    2. Chao Liang & Yanran Hong & Luu Duc Toan Huynh & Feng Ma, 2023. "Asymmetric dynamic risk transmission between financial stress and monetary policy uncertainty: thinking in the post-covid-19 world," Review of Quantitative Finance and Accounting, Springer, vol. 60(4), pages 1543-1567, May.
    3. Zeng, Qing & Lu, Xinjie & Dong, Dayong & Li, Pan, 2022. "Category-specific EPU indices, macroeconomic variables and stock market return predictability," International Review of Financial Analysis, Elsevier, vol. 84(C).

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    More about this item

    Keywords

    Economic policy uncertainty; Spillover index; Frequency-domain decomposition; Sino-US trade war;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General

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