Causality Between Us Economic Policy and Equity Market Uncertainties: Evidence from Linear and Nonlinear Tests
Ahdi Noomen Ajmi,
Goodness C. Aye,
Ghassen El Montasser and
Journal of Applied Economics, 2015, vol. 18, issue 2, 225-246
This paper examines the causal relationship between economic policy uncertainty (EPU) and equity market uncertainty (EMU) in the US. We use daily data on the newly developed indexes by Baker et al. (2013a) covering 1985:01:01 to 2013:06:14. Results from the linear causality tests indicate strong bidirectional causality. However, the parameters stability tests show strong evidence of short-run parameter instability, thus invalidating any conclusion from the full sample linear estimations. Therefore we turn to nonlinear tests and observe a stronger predictive power from EMU to EPU than from EPU to EMU. Using sub-sample bootstrap rolling window causality tests to fully account for the existence of structural breaks, we find evidence that EPU can help predict the movements in EMU only around 1993, 2004 and, 2006. However, we find strong evidence that EMU can help predict the movements in EPU throughout the sample period barring around 1998, 2003 and 2005.
References: Add references at CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Journal Article: Causality between US economic policy and equity market uncertainties: Evidence from linear and nonlinear tests (2015)
Working Paper: Causality between US Economic Policy and Equity Market Uncertainties: Evidence from Linear and Nonlinear Tests (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:taf:recsxx:v:18:y:2015:i:2:p:225-246
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Applied Economics is currently edited by Jorge M. Streb
More articles in Journal of Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().