Economic policy uncertainty and financial system efficiency.

Economic policy uncertainty (EPU) adversely affects financial system functioning with potentially critical repercussions for economies and corporations worldwide. Financial system efficiency (FSE) has a vital influence on fostering optimal economic growth and development; however, the impact of EPU on FSE remains under-explored. This study investigates the effect of EPU on FSE along with its components financial institution efficiency (FIE) and financial market efficiency (FME). Using data from 22 countries over a 20-year period (2002-2021), our analysis reveals a significant negative effect of EPU on FSE, FIE and FME. Notably, our split-sample analysis highlights the accentuated adverse effects of EPU in high-EPU regimes, emphasising the importance of vigilance during periods of elevated policy uncertainty. We conduct a series of sensitivity tests, including alternative measures of EPU, FSE, FIE and FME, and apply two-stage least squares and two-step dynamic system generalised method of moments estimators and introduce additional control variables. These tests consistently reaffirm the core conclusions of our study. Finally, we discuss the implications of our findings for policymakers.

Unlocking the path to environmental sustainability: navigating economic policy uncertainty, ICT, and environmental taxes for a sustainable future.

The study aims to gauge the impact of economic policy uncertainty, ICT, and environmental tax on environmental sustainability, which is measured by carbon emission and ecological footprint in a panel of 22 nations from 1997 to 2021. The present study has implemented the advanced panel data estimation techniques, including continuously updated fully modified (CUP-FM) and continuously updated bias-corrected (CUP-BC), dynamic seemingly unrelated regressions (DSUR), and nonlinear autoregressive distributed lagged (NARDL) in documenting the elasticities of target variables. Moreover, the directional causality has been tested through the D-H causality test. Study findings documented a positive and statistically significant linkage between EPU and environmental degradation. That is, EPU amplifies the emission of CO2 and ecological instability. The effects of ET and ICT are positively associated with environmental sustainability; that is, ET and ICT control the emission of CO2 and bring ecological improvement. This study contributes to the existing body of literature by conducting a thorough analysis of the relationship between various factors and their impact on environmental degradation. The study emphasizes the significance of every factor in influencing environmental outcomes. It provides policy suggestions to reduce CO2 emissions and promote ecological sustainability. The findings add valuable insights to the ongoing conversation about how to tackle environmental challenges in our constantly evolving world.

Economic policy uncertainty and enterprise export resilience in China: Does the digital economy matter?

In the new era of international trade, escalating uncertainty and the swift development of the digital economy stand out as two pivotal transformations. These phenomena individually exert significant influences on enterprises' exports; however, their combined effects on export resilience remain underexplored. Hence, drawing on existing theories, this paper analyzes the weakening effect of economic policy uncertainty on export resilience and explores the influence of regional digital economic development on this attenuation effect. Furthermore, empirical tests are conducted using micro-level data from China. The study findings reveal: (1) Economic policy uncertainty weakens firms' export resilience by increasing transaction costs; (2) Digital economic development mitigates this weakening effect by reducing transaction costs, with a more pronounced effect observed among highly efficient firms. The findings suggest that amid escalating uncertainty, vigorously promoting digital economic development holds profound policy significance for the high-quality development of international trade.

Unveiling asymmetry impacts of economic policy uncertainty on climate change: fresh insights into African Countries.

This study investigates the influence of economic policy uncertainty on climate change in selected African countries within asymmetric settings. Although previous research has examined the impact of various economic factors on climate change, the asymmetric effects of economic policy uncertainty have not been thoroughly explored, particularly in African countries. We analyze annual data spanning from 1980 to 2017 by utilizing three models: Panel Pooled Mean Group-Autoregressive distributed lag model (ARDL-PMG), Panel Pooled Mean Group-non-linear autoregressive distributed lag model (NARDL-PMG), and Dumitrescu-Hurlin asymmetric causality tests. According to the results of ARDL-PMG estimation, economic policy uncertainty has a detrimental impact on climate change in the long run. However, the NARDL-PMG estimation suggests that a positive shock in economic policy uncertainty negatively affects long-term climate change mitigation. However, a negative shock has a beneficial effect on climate change in the long term. In African nations, positive and negative changes in economic policy uncertainty failed to generate any significant climate change effects in the short run. The results also reveal that both positive and negative shocks in economic policy may cause climate change in a one-way direction. Based on the findings of our study, we recommend that African policymakers implement programs aimed at reducing economic policy uncertainties to help mitigate the effects of climate change.

The impact of economy policy uncertainty and oil price shocks on G20 banks' stock performance: Wavelet coherence and non-parametric causality in quantiles approach.

This study employs nonparametric causality-in-quantiles and wavelet coherence techniques to examine the impact of economic policy uncertainty and oil price variations on bank stocks in twelve prominent global economies. The results reveal that the effects of both economic policy uncertainty and oil prices on bank stock values vary significantly across countries and over time. Notably, during stress periods, we observe an inverse relationship between economic policy uncertainty and bank stocks in multiple countries, namely, Brazil, Canada, France, India, Russia, and the USA, with Japan exhibiting a particularly strong and long-term adverse correlation. Similarly, the influence of oil prices is primarily observed during crisis periods, but it demonstrates a substantial co-movement with bank stocks across the sample countries except Brazil. Our empirical analysis holds valuable implications for policymakers, bankers, investors, and portfolio managers.

How does world economic policy uncertainty influence the carbon dioxide emission reporting and performance? Study of Fortune Global 500 firms.

This study contributes significantly to the field by utilising the World Economic Policy Uncertainty (WEPU) Index, as devised by (Ahir in Nat Bureau Econ Res 2022), to scrutinise its impact on carbon dioxide emission reporting and performance. Employing the generalised method of moments (GMM) on a substantial dataset of 604 Fortune Global 500 firms spanning from 2005 to 2020, our analysis reveals crucial insights. The research elucidates the dual influence of WEPU Index: a positive correlation with carbon dioxide emission reporting and a negative correlation aimed at mitigating adverse effects and promoting sustainable practices, thereby enhancing firm trust. Moreover, the findings shed light on how companies in emission-intensive industries tend to ramp up carbon dioxide emission reporting, potentially to bolster investor confidence, particularly during high WEPU Index periods. Furthermore, this study uncovers a compelling association between high emitters and lowered carbon dioxide emission performance, stemming from political and social pressures to integrate environmental considerations. Notably, this pressure intensifies during periods of increased WEPU Index. The empirical results presented in this study carry immediate practical implications. Specifically, they offer valuable insights for regulatory bodies and industry associations, guiding the development of enhanced environmental and social reporting regulations and guidelines, particularly concerning carbon emission reporting and performance.

Impact of oil price volatility and economic policy uncertainty on business investment - Insights from the energy sector.

This research employs a worldwide sample of 4017 energy sector companies from 1996 to 2022 to examine the effects of economic policy uncertainty (EPU) and oil price uncertainty (OPU) on corporate investment in oil/energy sector and this study analyze how market instability and international economic disasters shape the connection between OPU and business assets. GLM regression with firms-years fixed effects and firm-based clustering indicate that both OPU and EPU had a detrimental influence on corporate investment in energy sector. Generalized linear models provide a universal method for addressing various response modeling issues. It is also revealed that oil-producing nations experience OPU and EPU's negative effects more severely than oil-consuming nations. This paper also demonstrates that the link between corporate investment, OPU and EPU is influenced by nations that produce oil, market volatility, and global financial crises. Strong evidence was found supporting the notion that OPU and EPU had a statistically significant detrimental impact on business assets. The findings of the paper are consistent under a variety of robustness tests and show that the association between OPU and EPU and business assets still holds. The results have significant bearing on the asset strategies that company managers and governments should adopt in light of the volatility of oil prices and EPU and this study provide valuable insights for policymakers who are focused on achieving energy transition, enhancing energy security, and meeting environmental goals such as reducing greenhouse gas emissions.

Evaluating the role of financial globalization and oil consumption on ecological quality: A new perspective from quantile-on-quantile granger causality.

Global warming has progressed into a pressing global concern, primarily driven by human activities. To address this issue, it is vital to identify the key drivers of ecological quality and develop effective policies in response. Consequently, this study seeks to empirically examine the causal effect of financial globalization, economic growth, economic policy uncertainty, and oil consumption on the load capacity factor (LF) in Brazil. The analysis utilizes quarterly data spanning from 1990 to 2021. In this pursuit, the study introduces an array of quantile-based methodologies, encompassing quantile ADF, PP, and KPSS tests, as well as the innovative Quantile-on-Quantile Granger Causality (QQGC) approach. The QQGC represents a notable advancement beyond traditional quantile Granger causality (QGC) methods, as it accounts for the conditional distribution of dependent and independent variables. This study bridges a critical gap in the existing literature by introducing the QQGC to capture the causal influence of the regressors on LF. The findings derived from the QQGC analysis indicate that financial globalization, economic growth, economic policy uncertainty, and oil consumption significantly predict LF across all quantiles. These results offer valuable insights that can inform the formulation of effective policies and strategies aimed at addressing ecological quality and mitigating the impacts of global warming.

The impacts of global economic policy uncertainty on green bond returns: A systematic literature review.

This study utilizes the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) framework to investigate the interconnectedness of green bond with various financial markets, aiming to clarify their relationship with global economic uncertainty and their impact on returns. After a comprehensive search of pertinent research papers from January 2016 to September 2023, 79 relevant articles were identified. The analysis delves into the evolution of research on green bonds' interactions with economic policy uncertainty considering the financial markets, analytical methodologies, contributions to the field, and the role of green bonds under both normal and extreme market conditions. The study reveals noteworthy findings: firstly, the interplay between green bonds and financial markets is influenced by macroeconomic factors, such as the COVID-19 pandemic and the Russia-Ukraine conflict in 2022, which were significant sources of economic policy uncertainty during the study period. Secondly, during times of global economic uncertainties, green Bonds act as net transmitters of spillovers in the short term but shifts to net receivers in the long term, positioning them as strategic hedging assets rather than safe-havens, particularly against spillovers from crude oil and CO2 emission in times of economic uncertainties. Additionally, the review highlights prevalent methodologies employed to assess the relationship between global economic policy uncertainty and green bonds. Some of which include quantile approaches, the Diebold & Yilmaz 2012 spillover index, as well as various models like VAR models, GARCH models, ARDL models. Notably, certain countries like China, the United Kingdom, and Vietnam emerge as key contributors to this research domain. The review not only consolidates existing knowledge but also provides valuable insights for investors and policymakers regarding green bonds in terms of risk management and asset allocation, while also pointing towards potential avenues for future research in this field.

Examining the linkage between economic policy uncertainty, coal price, and carbon pricing in China: Evidence from pilot carbon markets.

Economic policies affect companies' production decisions. And the energy consumption volume is an intuitive reflection of the enterprise's production decisions. In China, coal is the main source of carbon emissions and the most important energy source. Therefore, the coal market and the uncertainty of economic policies are both directly tied to the carbon market. This study explores both the direct impact of economic policy uncertainty and coal price on carbon prices as well as the indirect impact of economic policy uncertainty on carbon prices through coal prices by utilizing the DCC-GARCH model and the NARDL model. The findings indicate that the dynamic correlations between coal prices and the CEPU are always negative and that those between the price of carbon and the CEPU vary by area. Meanwhile, the dynamic correlations between coal and carbon prices are only positive in Shenzhen and Beijing. Both coal prices and economic policy uncertainty produce asymmetrical impacts on carbon prices. Some policy implications are provided for developing the carbon markets in light of the results drawn from the study.

The dampening effect of geopolitical risk and economic policy uncertainty in the linkage between economic complexity and environmental degradation in the G-20.

The question remains whether high geopolitical risk and economic policy uncertainty will have a dampening or enhancing effect on pollution factors. In this regard, the study empirically investigates the effects of economic complexity, geopolitical risk, economic policy uncertainty, renewable energy consumption and economic growth on environmental pollution for G-20 countries from 1997 to 2018. The long-term coefficient estimates, derived from the FMOLS estimator, support the inverted U-shaped EKC linkages between economic complexity and ecological footprint, carbon footprint and carbon dioxide emissions. Furthermore, over the long term, geopolitical risks, renewable energy use, and the interaction between economic complexity and policy uncertainty have a positive impact on environmental quality in the G-20 economies. Conversely, economic growth and the interaction between economic complexity and geopolitical risk are negatively associated with environmental quality. Additionally, economic policy uncertainty has a positive effect on ecological footprint carbon footprint and carbon dioxide emissions. Finally, causality results revealed that explanatory variables are the cause of environmental pollution indicators. Hence, in order to advance environmental quality in these nations, precautions must be taken to mitigate the effects of economic policy uncertainty and boost the accessibility of renewable energy sources. Additionally, while not advised as a policy measure, the feasible economic fallout of geopolitical risk should also be considered.

Quantile connectedness between the climate policy and economic uncertainty: Evidence from the G7 countries.

In this study, we investigate the transmission mechanism between climate policy uncertainty (CPU) and economic policy uncertainty (EPU) in the G7 countries. To account for different conditions, we use a quantile-based VAR (Q-VAR) model over the period between 2000 and 2021. Our results show high connectedness between the CPU and the EPU of G7 countries, particularly at extreme quantile orders. On the other hand, the spillover effects between climate and economic policy uncertainty differ depending on the distributional levels of the uncertainty indices. The CPU is a net receiver of uncertainty shocks, while for almost all countries, the EPU acts as a net receiver or emitter, depending on the economic situation. During times of high or low economic uncertainty, the EPU of all G7 countries is strongly affected by shocks originating from the CPU. Moreover, the results indicate that the dynamic spillover patterns between EPU and CPU vary over time, responding to different economic events and financial crises. These results call for policymakers and governments to urgently integrate climate considerations into economic planning, fiscal policies, and regulatory frameworks to promote sustainable economic growth and mitigate the impacts of climate change.

The responsiveness of renewable energy production to geopolitical risks, oil market instability and economic policy uncertainty: Evidence from United States.

This paper aims to investigate the responsiveness of renewable energy production (REP) to fluctuations in geopolitical risks, oil prices and economic policy uncertainty (EPU). It applies a cross-quantilogram framework to examine monthly data of the US economy for the period of 1986-2022. The findings illustrate the asymmetric effect of historical geopolitical risk (GPRH) on REP under long memory. The findings also hold after different subcategories of GPRH, including geopolitical threats and geopolitical acts, are considered. A positive shock in GPRH has the most decisive positive impact on REP when the policies are driven by both energy security and environmental commitments. A positive shock in GPRH can negatively impact REP when policies are driven by energy security causes only. EPU exerts strong negative effects on REP in bearish and bullish states of the market under medium and long memory across different measures of EPU. Dynamic connectedness analysis applying TVP-VAR method between pairwise variables indicates that net REP is a volatility receiver to the changes in GPRH, its subcomponents, oil prices and different measures of EPU.

Navigating the interconnected risks in currency valuation: unveiling the role of climate policy uncertainty.

Given the significance of fostering sustainable climate conditions for long-term economic stability and financial resilience, this study probes the connection between climate-related policy ambiguity and its implications for currency valuation. In doing so, the current study investigates the interconnected effects of climate policy on economic policy uncertainty and geopolitical risk with the currency valuation in ASEAN countries. Employing wavelet coherence analysis and partial wavelet coherence analysis, the paper highlights the complex relationships among these factors and their implications for exchange rate fluctuations. Using data from 2000 to 2022, the findings reveal that climate policy uncertainty is an important driver of exchange rate movements, amplifying the impact of economic policy uncertainty and geopolitical risk. Furthermore, the study identifies a vicious cycle between climate policy uncertainty and exchange rates, potentially impacting the region's macroeconomic stability and long-term economic growth. The study presents several policy recommendations to address economic and climate policy uncertainties comprehensively based on the findings. These recommendations include establishing national frameworks for climate risk management, enhancing policy credibility and macroeconomic stability, and promoting regional integration to mitigate the influence of geopolitical risk on exchange rates.

Are economic policy uncertainty and carbon futures price interacting? Evidence from the European Union.

This paper investigates the dynamic interplay between economic policy uncertainty and the carbon futures market within the context of global low-carbon development. The study utilizes a comprehensive dataset spanning 2005 to 2023, including daily observations of economic policy uncertainty (EPU) and carbon future prices (EUAP) in the European Union. Bootstrap subsample rolling window Granger causality tests are employed to examine the interrelationship between EPU and EUAP, providing robust and time-varying causal insights. The findings reveal the adverse impact of EPU on EUAP, highlighting that the volatility associated with economic policy uncertainty can serve as a predictive factor for carbon future prices. On the other hand, the EUAP exhibits a negative influence on the uncertainty of economic policy, indicating that the economic situation in Europe can be observed through the carbon future market. The findings presented in this study are in line with the underlying theoretical model of policy uncertainty and future prices. Considering the complex economic environment and the influence exerted by COVID-19, exploring the link between EPU and EUAP is crucial for informing investors' decision-making and guiding the development of policy to enhance carbon market efficiency and promote a low-carbon economy.

Uncovering the asymmetric impacts of economic policy uncertainty on green financial markets in China.

Green finance is considered a novel tool of financing to promote the development of the green economy, which has huge investment attractiveness. Previous studies detected the impacts of economic policy uncertainty (EPU) on the green financial markets are mixed. To this end, this study deeply investigates the asymmetric and heterogeneous impacts of EPU on the green bond and green stock markets based on the quantile-on-quantile (QQ) method. Using the data of China Economic Policy Uncertainty Index (CNEPU) and green financial indices, we get some interesting results. (1) EPU has an overall negative effect on the green financial markets, and the green stock market reacts more strongly than the green bond market. (2) For green bond market, the higher quantiles of EPU on a bear market have more significant effect than that on a bull market. (3) For green stock market, a negative effect of EPU on green stock market is observed for the lower quantiles of EPU, while a positive effect is noted at the highest quantiles of EPU. This paper could provide a reference for investors making green investment strategies and for policymakers making policies to promote green development.

Impact of economic policy uncertainty and renewable energy on environmental quality: testing the LCC hypothesis for fast growing economies.

This study investigates the influence of economic policy uncertainty and trade openness on load capacity factor for fast growing countries for time period of 1996-2019. The empirical outcomes verify the presence of the LCC hypothesis in fast growing economies. Results also show that economic policy uncertainty reduces environmental quality for lower quantiles, whereas renewable energy consumption is a useful tool for improving environmental quality. Moreover, the negative sign of the coefficient of trade openness demonstrates that the current pattern of trade is not providing the desired outcomes. Based on these empirical findings, we suggest a comprehensive policy framework to attain the targets of SDG 07 (renewable energy), SDG 08 (economic growth), and SDG 13 (climate action).

Conditional effects of local and global risk factors on the co-movements between economic growth and inflation: Insights into G8 economies.

World economies have experienced rise in uncertainties which has caused misalignments in the already existing nexus between inflation and economic growth. In addition to this, the presence of nonlinearities, asymmetry, heterogeneity, and structural shocks in time series data concerning substantial fluctuations that span systemic crises have rendered time and/or frequency connectedness worthy of investigation. Due to limited studies in this regard, the authors investigated the risk synchronisation among Gross Domestic Product (GDP), Consumer Price Index (CPI), Economic Policy Uncertainty (EPU) and Geopolitical Risk with insights from G8 countries. To achieve the study's purpose, estimation techniques employed included the wavelet approaches (bi-wavelet and partial wavelet), and the wavelet multiple as well as the DCC-GARCH Connectedness approach as robustness. A sample period from January 1997 to August 2021 restricted by consistent data availability was considered. It was discovered that most G8 nations have a comparable relationship between their GDP and CPI. Additionally, significant co-movements between the G8 nations' GDP and CPI straddle crises. Furthermore, the relationship between Russia's GDP and CPI was significantly conditionally influenced by geopolitical risk factors. Own country economic policy uncertainty was the main source of shocks for nations like Canada, France, and the US, whereas, in Germany, Italy, and the UK, Global EPU was a crucial conduit for reducing the lead-lag relationship between GDP and CPI. Outcomes from this study imply that uncertainties pose a more persistent and dynamic challenge to the G8 countries' efforts to achieve sustained economic growth, lessen the negative effects of inflation and deflation, and improve national and regional economic integration.

Environmental cost of natural resources, globalization, and economic policy uncertainty in the G-7 bloc: do human capital and renewable energy matter?

The panel of G-7 economies is considered one of the most prosperous economies, endowed with abundant natural and renewable energy resources. Due to their richness in these resources, most economic development and activities, including environmental and economic aspects, depend on and are determined by energy consumption and natural resource rents. However, the increasing dependence of G-7 economies on energy consumption and natural resources raises questions about their long-term growth and ecological policies towards achieving sustainable development goals (SDGs). Therefore, the main objective of this study is to examine the influence of natural resources, renewable energy, economic policy uncertainty, human capital, and globalization on the ecological footprint in the panel of G-7 economies from 1990 to 2020. After confirming the cross-sectional dependence issue, this study applied second-generation panel data approaches to estimate robust and reliable outcomes. The estimated evidence from this study discovered that natural resources, globalization processes, and economic policy uncertainty significantly increase the level of ecological footprint in the region. In contrast, renewable energy and human capital provide feasible solutions for ecological improvement in the study area. Likewise, the interactive role of renewable energy with economic policy uncertainty significantly protects the environmental quality in the study area. Based on the estimated findings, this study recommends various achievable policy options for policymakers and the governments of these economies to ensure environmental sustainability.

How economic policy uncertainty and geopolitical risk affect environmental pollution: does renewable energy consumption matter?

Climate change traps heat, affecting various species in previously dry areas. Climate change brought on by emissions of greenhouse gases exacerbates problems such as severe storms, earthquakes, epidemics, and food distribution. The group of developed and developing countries, the world's biggest carbon emitters and most significant economies, is expertly planning to lessen its environmental challenges and contribute to achieving Sustainable Development Goals 7 and 13 set by the United Nations. This study uses the novel econometric methodologies of the dynamic ordinary least square (DOLS) estimator, the augmented mean group (AMG) estimator, and the fully modified ordinary least square (FMOLS) estimate to examine the influence of economic policy uncertainty, renewable energy consumption, geopolitical risk, non-renewable energy consumption, and economic growth on ecological footprint from 2000 to 2021. The results reveal that the variables are co-integrated; REC reduces carbon emissions, EPU, geopolitical risk, and economic growth contribute to increasing carbon emissions, while urbanization improves carbon emission. Finally, the results suggest that the developed and developing economies can progress toward SDGs 7 and 13 by using renewable energy, lowering the geopolitical risk, effectively handling policy uncertainty, and reducing urbanization.