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Cross-category spillover effects of economic policy uncertainty between China and the US: Time and frequency evidence

Junjie Guo, Youshu Li and Qinglong Shao

Journal of Asian Economics, 2022, vol. 80, issue C

Abstract: This study investigates the connectedness among three types of economic policy uncertainties, namely monetary, fiscal, and trade uncertainties, between China and the US. We used the spillover index measurement and the frequency-domain decomposition approach to detect the spillover effects of these categorical uncertainties from both the time- and frequency-domain perspectives. The results suggest that the spillover effects have time-varying characteristics, and some major events could sharply increase the spillover indices. More spillovers are mainly observed in the short-term, whereas the impacts of the medium- and long-term are limited. Furthermore, the leader of the spillover is monetary policy in China, but fiscal policy in the US, the spillovers of all uncertainties mainly exist domestically, apart from the US trade policy uncertainty. These results provide crucial implications for policymakers and investors, who should pay more attention to short-term spillovers and monetary policy uncertainty, which can mitigate their vulnerability to policy uncertainty shocks.

Keywords: Economic policy uncertainty; Spillover index; Frequency-domain decomposition; Sino-US trade war (search for similar items in EconPapers)
JEL-codes: C32 F42 F50 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.asieco.2022.101462

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