Comparative responses of renewable energy stock market to economic policy uncertainty and climate policy uncertainty shocks: Evidence from China

Xiuqi Yang and Jing Nie

Review of Development Economics, 2025, vol. 29, issue 1, 450-475

Abstract: With rising climate policy uncertainty (CPU) and economic policy uncertainty (EPU), it is crucial to analyze the factors influencing the renewable energy stock market (RE) from a comprehensive perspective. Using data from January 2009 to May 2022, we use a time‐varying parameter vector autoregressive model with stochastic volatility (TVP‐VAR‐SV) to examine CPU, EPU, macroeconomic factors, and RE in a unified framework. We analyze the various responses of RE to CPU and EPU. Furthermore, we test for differences in the impact of the four classifications of EPU on RE. The findings are as follows. The time‐varying impact of CPU on RE is centered on the short term and is positive during non‐crisis periods. In contrast, the impact of EPU on RE is negative in the short term. In addition, causal identification at the micro level reveals that RE can increase by 0.932% on average after being affected by CPU. Further comparing the four classifications of EPU, we find that exchange rate policy uncertainty has the largest negative impact. Our study enriches the investment theory on RE. It avoids biased interpretations of various policy uncertainties and has a significant implication for policymakers, renewable energy firms, and investors.

Date: 2025
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