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Visiting the Economic Policy Uncertainty Shocks - Economic Growth Relationship: Wavelet-based Granger-Causality in Quantiles Approac

Author

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  • Yonghong JIANG

    (Institute of Finance and College of Economics, Jinan University, Guangzhou 510632, China; Economics Department, Wisconsin University.(Eau Claire), WI 54701, USA.)

  • Juan MENG

    (Institute of Finance and College of Economics, Jinan University, Guangzhou 510632, China.)

  • He NIE

    (Institute of Finance and College of Economics, Jinan University, Guangzhou 510632, China.)

Abstract

In this paper, the wavelet-based Granger-causality in quantiles method is employed to investigate the multi-scale causality between China’s economic policy uncertainty shocks and economic growth. The results indicate that i) a single-directional causality from growth to economic policy uncertainty shocks in the shorter term and a strong bi-directional causality in the longer term between economic policy uncertainty shocks and economic growth using a conditional mean analysis, ii) the nonlinear causal relationship between economic policy uncertainty shocks and economic growth is time-varying in different quantiles and different timescales, and iii) a significant single-directional nonlinear causality from growth to economic policy uncertainty shocks for some τ- quantiles in D1-D4. The results of this paper show that economic policy uncertainty not only provides a new method to predict economic growth, but also warns us that the accumulation of economic policy uncertainty would increase economic crisis. Thus, it is vital for the policymakers to reduce economic policy uncertainty so as to keep the stability of economic growth. Overall, this paper offers a new methodological perspective, from different timescales and different quantiles, to deeply analyze the causality between macroeconomic variables.

Suggested Citation

  • Yonghong JIANG & Juan MENG & He NIE, 2018. "Visiting the Economic Policy Uncertainty Shocks - Economic Growth Relationship: Wavelet-based Granger-Causality in Quantiles Approac," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 80-94, December.
    • Handle: RePEc:rjr:romjef:v::y:2018:i:2:p:80-94
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    More about this item

    Keywords

    economic policy uncertainty shocks; economic growth; Granger causality; wavelet; different quantiles; different timescales;
    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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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