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Do domestic and US economic policy uncertainty increase China’s macro-financial risk connectedness?

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  • Hu, Chunyang
  • Zhou, Yang

Abstract

While economic policy uncertainty (EPU) has been shown to increase systemic risk within financial institutions, there is limited knowledge about the role of EPU in influencing the risk connectedness (spillover) between financial markets and macroeconomic sectors. This paper provides a systematic analysis and comparison of how China’s macro-financial risk connectedness in responds to an increase in domestic and US EPU. The results suggest that: (i) an increase in domestic EPU leads to a significant rise in macro-financial total risk connectedness for at least two years; (ii) specifically, the increase in domestic EPU causes financial markets to act more as transmitters of risk, while macroeconomic sectors act more as receivers of risk; (iii) categorical EPUs exhibit a similar pattern to the overall EPU, with China’s monetary policy uncertainty (MPU) having the largest effects; (iv) US EPU also increases China’s macro-financial risk connectedness, though the impact is lower in magnitude and shorter in duration; (v) however, during the US–China trade conflict, a rise in US TPU causes a more significant and persistent increase in China’s macro-financial risk connectedness.

Suggested Citation

  • Hu, Chunyang & Zhou, Yang, 2025. "Do domestic and US economic policy uncertainty increase China’s macro-financial risk connectedness?," Research in International Business and Finance, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:riibaf:v:80:y:2025:i:c:s0275531925003940
    DOI: 10.1016/j.ribaf.2025.103138
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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F30 - International Economics - - International Finance - - - General

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