Global Synchronization Effect of Economic Policy Uncertainty

Xiaojun Zhao, Qingyu Meng, Chao Xu and Na Zhang

Review of International Economics, 2025, vol. 33, issue 4, 853-869

Abstract: We identify the systematic risks in global economic policy by measuring the synchronization effect of economic policy uncertainty (EPU) worldwide. It conveys new information, while the existing global economic policy uncertainty (GEPU) cannot. Firstly, we use the random matrix theory (RMT) to construct a new synchronization index and identify the synchronization effect of EPU among 21 major countries. The advantage of this non‐parametric method is its low requirements for the sample size of the large‐dimensional data, whereas vector auto‐regression (VAR)‐based parameter models may fail. Then, the empirical results indicate that strong synchronization exists globally, and this effect is robust across multiple time scales, from quarterly and semi‐annual to annual scales. Further, the trend extracted from the HP filter verifies the existence of synchronization in the long term. We also discover the time‐varying synchronization effect by using moving windows, where the synchronization effect is notably intensified by exogenous shocks, such as during the 2008 financial crisis and the COVID‐19 pandemic.

Date: 2025
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