Navigating Uncertainty: The Micro-Level Dynamics of Economic Policy Uncertainty and Systemic Financial Risk in China’s Financial Institutions

Hualu Shao, Baicheng Zhou, Di Wang () and Zirong An
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Hualu Shao: Jilin University
Baicheng Zhou: Jilin University
Di Wang: Jilin University
Zirong An: Jilin University

Journal of the Knowledge Economy, 2025, vol. 16, issue 2, No 2, 5861 pages

Abstract: Abstract The paper navigates the intricate landscape of economic policy uncertainty (EPU) and its implications for systemic financial risk (SFR) among micro-financial institutions in China. Against the backdrop of global economic volatility and the rise of ‘black swan’ events, the study departs from conventional approaches, offering a nuanced micro-level exploration. By examining 123 individual financial entities spanning banking, securities, insurance, trust, and financial holding institutions, the research reveals sector-specific variations in the impact of EPU on SFR. The findings indicate that during periods of heightened economic turbulence, the influence of EPU on SFR is notably pronounced, highlighting a non-linear relationship. These insights redefine our understanding of risk contagion dynamics, urging a shift from a uniform assessment to a sector-specific, context-sensitive perspective. The study’s theoretical contributions extend beyond conventional market-level evaluations, offering a refined view of how EPU shapes financial stability. The research has practical implications for financial institutions, urging tailored risk management strategies. Policymakers and regulators are encouraged to prioritize transparency and policy consistency to mitigate adverse systemic risk effects, emphasizing the significance of proactive measures for financial stability in an ever-evolving economic landscape. This study contributes to the knowledge economy by bridging gaps in existing literature, paving the way for future research in financial risk analysis.

Keywords: Economic policy uncertainty; Systemic financial risk; Micro-financial institutions; Sector-specific variations; Financial stability; Risk contagion; Policy consistency; Financial resilience; Non-linear dynamics; Global economic volatility (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s13132-023-01730-x

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