How susceptible is the European financial stability to economic policy uncertainty?

Lucjan Orlowski

Journal of Policy Modeling, 2023, vol. 45, issue 4, 864-875

Abstract: This study examines the interdependence and asymmetries in the relationships between the economic policy uncertainty and the selected financial stability variables in Europe. Specifically, the impact of uncertainty on inflation, equity returns, the euro in US dollar exchange rate and interest rates is analyzed. The results show a significant negative impact of shocks in economic policy uncertainty on equity returns in Europe during the examined January 1987 – January 2023 period. Uncertainty shocks affect inflation asymmetrically at different time intervals. Asymmetric responses of interest rates and the exchange rate to uncertainty shocks are also found. The results suggest that economic policies in Europe should encompass efforts to mitigate economic uncertainty.

Keywords: Economic policy uncertainty; Minsky-Kindleberger Theory of Financial Instability; Financial stability in Europe; Multiple breakpoint regression (search for similar items in EconPapers)
JEL-codes: C22 E31 E44 G17 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:45:y:2023:i:4:p:864-875

DOI: 10.1016/j.jpolmod.2023.07.011

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