Economic policy uncertainty and financial stability–Is there a relation?
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journal contribution
posted on 2024-06-06, 08:29 authored by DHB Phan, BN Iyke, Susan SharmaSusan Sharma, Y Affandi© 2020 Elsevier B.V. This paper investigates the impact of economic policy uncertainty on financial stability. Using data for 23 countries over the period of 1996 to 2016, we show that the impact is negative and statistically significant. Economically, a unit standard deviation increase in economic policy uncertainty decreases financial stability by between 2.66% and 7.26% of its sample mean. The negative impact of economic policy uncertainty on financial stability is stronger for countries with higher competition, lower regulatory capital, and smaller financial systems. We show that our finding is robust using bank-level data and different constructions of global panel portfolios, and controlling for Z-score skewness, the Global Financial Crisis, and for endogeneity.
History
Journal
Economic ModellingVolume
94Pagination
1018-1029Location
Amsterdam, The NetherlandsPublisher DOI
ISSN
0264-9993eISSN
1873-6122Language
EnglishPublication classification
C1 Refereed article in a scholarly journal, C Journal articlePublisher
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Keywords
Social SciencesEconomicsBusiness & EconomicsEconomic policy uncertaintyFinancial stabilityFinancial system characteristicsCountry levelBank levelBANK RISK-TAKINGCAPITAL REQUIREMENTSMARKET POWERCOMPETITIONINSTABILITYINVESTMENTINFLATIONIMPACTDepartment of EconomicsCentre for Economics and Financial Econometrics Research3502 Banking, finance and investment3801 Applied economics
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