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The Nonlinear Macroeconomic Effect of Policy Uncertainty and Its Influencing Mechanism
Author(s): 
Pages: 116-133
Year: Issue:  4
Journal: Finance & Trade Economics

Keyword:  Policy UncertaintyMacroeconomic EffectThreshold VAR ModelCounterfactual Analysis;
Abstract: As an inevitable result of macroeconomic control,policy uncertainty has an important impact on the implementation effect of economic policies.Based on threshold VAR model and counterfactual analysis,this paper empirically examines the nonlinear macroeconomic effect of China’s policy uncertainty and its influencing mechanism.The results are as follows.(1) During the economic downturn,policy uncertainty has a significantly positive impact on output growth.On the contrary,the policy uncertainty has a negative impact on output growth during the economic boom.(2) Furthermore,the counterfactual analysis indicates that policy uncertainty has a positive impact on output growth through the boost of consumer confidence and investment demand reflected by the scale of bank credit during the economic downturn,but consumer confidence and bank credit channel have little impact on policy uncertainty’s output growth effect during the economic boom.These results explain why China has a more outstanding economic growth performance during the international financial crisis.The policy implication is that,in the implementation of macroeconomic control,Chinese government should explicitly consider the impact of policy instrument choice and policy implementation process on the nature of policy uncertainty,and timely convert the public expectations management and bank credit scale control strategies according to the state of the economy.
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