Does Economic Policies Uncertainty affect Economic Activity? Evidences from the United States of America

Bogdan Dima, Marius Sorin Dincă (), Ştefana Maria Dima () and Gheorghiţa Dincă ()
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Marius Sorin Dincă: Transilvania University of Brasov, Romania
Ştefana Maria Dima: West University of Timisoara, Romania.
Gheorghiţa Dincă: Transilvania University of Brasov, Romania

Journal for Economic Forecasting, 2017, issue 1, 60-74

Abstract: The last global financial and real turmoil highlighted the importance of stable and effective economic policies. Using a recently developed measure of economic policy uncertainty, we estimate - for the United States of America, from 1973 to 2014 - the uncertainty impact upon economic activity volatility, as captured by a Nonlinear ARCH model. We learned that inflation volatility exerts the largest overall impact, followed by personal consumption expenditure volatility, while the commercial and industrial loans produce a small (although significant) effect. We found evidences of a U-shaped impact of policy uncertainty upon volatility. However, the net effect is direct: an increase in uncertainty leads to an overall increase in economic volatility. We conclude that a stable and predictable economic policy is critical for the economic growth.

Keywords: uncertainty; volatility; NARCH/ GARCH (search for similar items in EconPapers)
JEL-codes: C33 O11 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2017:i:1:p:60-74

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