Evaluating the Importance of Monetary Policy Uncertainty: The Long- and Short-Term Effects and Responses
Yang Hu,
Yanran Hong,
Kai Feng and
Jikai Wang
Evaluation Review, 2023, vol. 47, issue 2, 264-286
Abstract:
Monetary policy changes have an irreplaceable impact on economic activity. Considering the close linkage among economic policies, we employ a bi-directional Granger causality test to investigate the potential linkages between monetary policy uncertainty (MPU) and other categorical economic policy uncertainty (CEPU) in the time and frequency domains. We consider all news-based U.S. categorical economic policy uncertainty indices (CEPU). All monthly CEPU indicators, covering January 1986 to January 2022, can be obtained from the website of Economic Policy Uncertainty. On an average, causality running from each CEPU to MPU is not apparent, while MPU can significantly affect six policy-related uncertainties: taxes, government spending, health care, national security, entitlement programs and regulation. A further frequency-domain study showed the dynamic changes in the relationship between them. For instance, we capture mid- and long-run causality running from tax uncertainty to MPU, while MPU has an impact on taxes in the medium run. Our findings provide policymakers with a better understanding of the nexus between MPU and other CEPU for formulating appropriate economic policies. Particularly, if a sectional government considers the long- and short-term effects of different policies when formulating strategies, risk transmission may be curbed to some extent.
Keywords: monetary policy uncertainty; categorical economic policy uncertainty; Granger causality test; time domain; frequency domain (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:
Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/0193841X221124434 (text/html)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:sae:evarev:v:47:y:2023:i:2:p:264-286
DOI: 10.1177/0193841X221124434
Access Statistics for this article
More articles in Evaluation Review
Bibliographic data for series maintained by SAGE Publications (sagediscovery@sagepub.com).