The interdependence of global oil price, China's stock price and economic policy uncertainty

Xue Gao, Yixin Ren and Xin Li

Australian Economic Papers, 2019, vol. 58, issue 4, 398-415

Abstract: This investigation examines the interaction among global oil price (OP), China's stock price (SP) and China's economic policy uncertainty (EPU) during the period of 2005:01 and 2017:12. A rolling window Toda‐Yamamoto causality method shows a complex time‐varying relationship. Bilateral causalities between these variables mostly accompany by sharp fluctuations in global or China's economy. Taking into account the inherent consistency of this time‐varying relation, the causal steps approach shows EPU follows a partial but time‐varying mediator process during crisis periods, which suggests EPU is one of mediator variables in this transmission mechanism. The mediator role of EPU in the transmission mechanism of OP and SP has not been paid enough attention before. Our findings provide a new direction for investors from the perspective of policy changes to deal with risks caused by OP and SP fluctuations especially when the financial market experiencing huge fluctuations.

Date: 2019
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