Economic Policy Uncertainty and Financial Markets in the United State

Fadekemi Chidinma Adeloye, Olayinka Olawoyin and Chinaemerem Daniel
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Fadekemi Chidinma Adeloye: Fox School of Business, Temple University, Philadelphia, USA
Olayinka Olawoyin: Fox School of Business, Temple University, Philadelphia, USA
Chinaemerem Daniel: Drexel University, Philadelphia, USA

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 6, 998-1016

Abstract: The economic space is ever-changing; hence, navigating the complexities of monetary policy uncertainty (EPU) and its ramifications on financial markets poses significant challenges for stakeholders. Policy uncertainty can lead to volatile market conditions, impacting investment decisions, capital flows, and overall economic stability. Thus, this study investigates this relationship by analyzing key variables such as stock market volatility, credit spreads, government bond yields, and trade volume. Utilizing secondary data from the Federal Revenue Economic (FRED) official website from 1990 to 2023, the study employs an autoregressive distributed lag model, incorporating an error correction mechanism and cointegration test. The findings indicate that stock market volatility (VI) has a significantly negative impact on market performance, demonstrating that increased volatility adversely affects market outcomes over extended periods. Moreover, the study observes relative stability in credit spreads, while trade volume and stock market volatility exhibit considerable fluctuations. While stock market volatility shows a significant negative impact on market performance, the effects of credit spreads and government bond yields are less evident. This study offers vital insights to policymakers, investors, and market participants, equipping them with knowledge to navigate uncertain financial environments and make informed decisions. Recommendations include strategies to mitigate the adverse effects of stock market volatility and foster stability in financial markets for sustainable economic growth.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bcp:journl:v:8:y:2024:i:6:p:998-1016

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