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Economic Policy Uncertainty and Stock Market Volatility: A Causality Check (Burkhard Raunig)

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Abstract

Using causal graphs, this paper develops a simple check to uncover the direction of the causal link between economic policy uncertainty and stock market volatility. The check is applied to monthly data for 22 countries. The results imply that uncertainty is an instantaneous cause of stock market volatility. Estimates suggest that stock market volatility increases by 0.15% to 0.85% after a 1% increase in economic policy uncertainty.

Suggested Citation

  • Burkhard Raunig, 2021. "Economic Policy Uncertainty and Stock Market Volatility: A Causality Check (Burkhard Raunig)," Working Papers 234, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:234
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    References listed on IDEAS

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    More about this item

    Keywords

    Causal inference; Causal graph; Economic policy uncertainty; Stock market volatility;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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