File(s) under permanent embargo

Economic policy uncertainty and financial stability–Is there a relation?

journal contribution
posted on 01.01.2021, 00:00 authored by D H B Phan, Bernard Njindan 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 Modelling

Volume

94

Pagination

1018 - 1029

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0264-9993

Language

eng

Publication classification

C1 Refereed article in a scholarly journal; C Journal article