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Measuring Economic Uncertainty in China†

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  • Wei-Fong Pan
  • Xinjie Wang
  • Shixuan Wang

Abstract

This study develops a new economic uncertainty (EU) index based on Chinese newspapers to address the media coverage bias of existing measures. We investigate how the EU affects China’s macroeconomy. Our results suggest that the EU reduces aggregate output. We find that uncertainty predicts fluctuations in economic activity and actual economic activity also predicts EU, but nonlinearly. Furthermore, we show that uncertainty in the United States leads to uncertainty in China, implying that negative EU on the Chinese economy is coming from the U.S. Finally, we conduct some asset-pricing tests, showing that EU can predict stock returns and commands risk premium. Our results are helpful for both researchers and policymakers to stabilize the economy and financial markets in China.

Suggested Citation

  • Wei-Fong Pan & Xinjie Wang & Shixuan Wang, 2022. "Measuring Economic Uncertainty in China†," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(5), pages 1359-1389, April.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:5:p:1359-1389
    DOI: 10.1080/1540496X.2021.1873764
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    Cited by:

    1. Xiaocui Deng & Xiaojian Su, 2023. "Do Financial Liabilities Matter in “Size Effect”? Evidence from the Chinese A-Share Market," Sustainability, MDPI, vol. 15(4), pages 1-11, February.
    2. Ding, Yibing & Liu, Ziyu & Liu, Dayu, 2022. "Structural news shock, financial market uncertainty and China's business fluctuations," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).

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