EconPapers    
Economics at your fingertips  
 

Financial market volatility and economic policy uncertainty: bridging the gap

Giulia Martorana and Jakub Mistak

Economic Bulletin Boxes, 2025, vol. 4

Abstract: This box explores the relationship between financial market volatility and economic policy uncertainty (EPU). Historically, financial market volatility and news-based measures of EPU have displayed close co-movement, albeit diverging at times and across countries. More recently, the rise in euro area EPU has reflected an intensification of an upward trend observed over a number of years, largely driven by developments in Germany. Focusing on Germany and using a large language model, a topic-based analysis of newspaper articles identifies domestic and global uncertainties as being behind the recent surge in EPU. Moreover, in line with empirical findings for the United States, a regression analysis shows that a disconnect between financial market volatility and EPU is more likely when equity market momentum is strong, while co-movement is more likely when that momentum is weak. This interpretation is consistent with developments following the US tariff announcement on 2 April, when the spike in financial market volatility aligned with persistently high EPU levels on the back of a significant sell-off in equity markets. JEL Classification: D84, E44, G18

Keywords: economic policy uncertainty; financial market volatility (search for similar items in EconPapers)
Date: 2025-06
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//press/economic-bulletin ... 5~2dc91bb9e3.en.html (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:ecb:ecbbox:2025:0004:5

Access Statistics for this article

More articles in Economic Bulletin Boxes from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().

 
Page updated 2025-06-24
Handle: RePEc:ecb:ecbbox:2025:0004:5