Have Dynamic Spillovers and the Connectedness of Trade Policy Uncertainty Changed During the COVID-19 Pandemic and Sino-US Trade Frictions?

Chien-Chiang Lee () and Farzan Yahya
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Farzan Yahya: College of Finance and Economics, Nanchang Institute of Technology, Nanchang, China

No DP-2023-35, Working Papers from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: In this paper, we examine the spillover and connectedness between the trade policy uncertainty (TPU) of the United States (US), China, Japan, and the Republic of Korea (henceforth, Korea) under global geopolitical risk (GPR), infectious disease equity market volatility (EMVID), and GPR from North Korea (GPRNK) using a relatively novel time-varying parameter vector autoregression (TVP-VAR) approach. Additionally, method of moments quantile regression is utilised to estimate the asymmetric effect of GPR, GPRNK, and EMVID on TPU. Our findings suggest that there is a high total and directional spillover amongst underlying variables during Sino–US trade friction that further elevated during the coronavirus disease (COVID-19) pandemic period. The US is a net receiver of spillover from the TPU of all economies, while the Chinese TPU receives spillover from EMVID. The results further confirm that both the TPU of China (TPUCN) and the TPU of the US (TPUUS) are vulnerable to EMVID, but the effect is stronger for Chinese TPU in the higher quantiles. Although Japanese TPU is less vulnerable to GPR and EMVID, it is significantly exposed to GPRNK. Korean trade shows resiliency and immunity to pandemic-induced volatility and GPRNK.

Keywords: Trade policy uncertainty; global geopolitical risk; Sino–US trade friction; COVID19 pandemic (search for similar items in EconPapers)
Date: 2024-03-21
New Economics Papers: this item is included in nep-cna and nep-int
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Citations: View citations in EconPapers (1)

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