Time-frequency relationship between economic policy uncertainty and financial cycle in China: Evidence from wavelet analysis

Ding Liu, Weihong Sun, Liao Xu and Xuan Zhang

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

Abstract: Global events like the Sino–American trade war have renewed interest in the implications of economic policy uncertainty (EPU). Previous literature largely neglect time–frequency dependencies between EPU and macro–financial factors. We employ wavelet methods to examine how EPU interacts with total credit, housing prices, stock prices, and GDP in China, respectively. We find that China's short– and medium–term financial and business cycles have been recovering. Still, the long–term components remain in the contraction phase, partly due to increasing EPU. Moreover, the correlation and the lead–lag relationships between EPU and the macro–financial variables are frequency–dependent and time–varying.

Keywords: Financial cycle; Economic policy uncertainty; Business cycle; Wavelet methods (search for similar items in EconPapers)
JEL-codes: C49 E32 E44 E60 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x22002104

DOI: 10.1016/j.pacfin.2022.101915

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