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Financial openness, economic policy uncertainty, and financial development: Evidence from western economies

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  • Wen, Rui
  • Wu, Lingxia

Abstract

This paper examines the nexus between macroeconomic fluctuations and financial stability, with a particular focus on the moderating role played by economic policy uncertainty (EPU) in Western economies. Utilizing panel data analysis across selected advanced economies, the study reveals that heightened policy uncertainty significantly exacerbates macroeconomic volatility and negatively impacts financial stability by disrupting capital allocation efficiency and intensifying systemic vulnerabilities. Empirical findings underscore the importance of stable, predictable policy environments for mitigating financial risks and achieving sustained macroeconomic resilience. The research provides actionable insights for policymakers aiming to balance financial liberalization and stability, emphasizing institutional transparency and effective policy management.

Suggested Citation

  • Wen, Rui & Wu, Lingxia, 2026. "Financial openness, economic policy uncertainty, and financial development: Evidence from western economies," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s1544612325024869
    DOI: 10.1016/j.frl.2025.109237
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    References listed on IDEAS

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