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Have cross-category spillovers of economic policy uncertainty changed during the US–China trade war?

Huifu Nong

Journal of Asian Economics, 2021, vol. 74, issue C

Abstract: This study investigates the interconnection of policy uncertainties between the world’s two largest countries, the US and China, and sheds light on whether and how the US–China trade war affects each party. Given the deep-seated economic integration and trade linkage between the two countries, these characterizations are essential for understanding how policy shocks propagate spatially. Using fiscal, monetary, and trade policy data from January 2000 to December 2019, I provide ample evidence of bilateral, multilateral, and system-wide measures of policy uncertainty connectedness. Monetary policy is most likely to be the leader of policy uncertainty in China, while fiscal policy is more likely to be the leader in the US. The cross-category connectedness is not constant over time. Overall, the direction of spillover is from the US to China, although this changes in different periods owing to different environments. These findings are useful for policymakers to monitor the effectiveness of policies and to help investors avoid economic policy uncertainty shocks induced by return fluctuations.

Keywords: Economic policy uncertainty; US–China trade war; Spillovers; Network connectedness (search for similar items in EconPapers)
JEL-codes: C32 D80 E65 H00 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.asieco.2021.101312

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