The Impact Of Economic Policy Uncertainty On Output And Its Transition Channels

Economic growth and business cycle are the two core issues in macroecono-mic studies.The measurement of business cycle fluctuations,the analysis of its stylized facts and the research of driving force of business cycle,have always been the intensive focus and research program in economics and practice.However,as a new research field in recent years,both the empirical analysis and theoretical research of the impact of uncertainty shocks have just been unfolding,in particula-r,since the seminal contribution of Bloom,he provided a brand-new idea and fra-mework about the research of causes of macroeconomic fluctuations.Frank Knight(1921),the famous Chicago economist,created the modern definition of uncertainty,and the Stanford University economics professor Nicholas Bloom(2009)makes the seminal contribution about the impacts of uncertainty shocks.From abroad research progress,both empirically and theoretically,they demonstrate that uncertainty shocks are the significantly reason of the serious economic downturn during the Financial Crisis and the weak recovery in the post-crisis.From the point view of China’s macroeconomic reality,our economic development presents a very different situation with the past since 2012,and the economy has entered the " New Normal" Stage.Particularly,most of around 2009 and after 2012,our economy has been at a high level of uncertainty,and how do the uncertainty shocks have impacts on China’s macroeconomy,whether these effects can constitute the cause of the downward pressure on our economy,what are the transition channels of uncertainty shocks?And the answer of these questions,existing papers in domestic have not yet given a clear demonstration.Under this background,based on the existing literature,this thesis applies the popular macroeconometric tools-Time-Varying Parameters Vector AutoRgression model with Stochastic Volatility(TVP-SV-VAR model)to study the time-varying characteristics of the macroeconomic impacts of economic policy uncertainty shocks,and to clarify the characteristics of the current macro economy,to explore the factor that drives the business cycle fluctuation,then we try to use the existing economic theory to explain the results.The empirical results are as follows:1.Using the monthly macroeconomic data and China Economic Policy Uncertainty Index,which published by Stanford University and Chicago University,this thesis builds a TVP-SV-VAR model to study the output effect of economic policy uncertainty shocks,and capture the dynamic changes of the effect.The empirical results reveal that uncertainty shocks have obvious time-varying impacts on macroeconomy,however,the traditional VARs are difficult in describing this dynamic relationship.2.From the point of the specific effects,economic policy uncertainty shocks have clear negative impacts on output,these effects become more clear during the Global Financial Crisis,and uncertainty shocks also have a great inhibitory effect recently.These indicate that the high level of economic policy uncertainty is one of the important reasons of the serious economic downturn during the Financial Crisis and the weak recovery in the post-crisis.In addition,the results are robust by altering ordering of the endogenous variables,introducing the Consumer Confidence Index to control expectation,and altering the Index of economic policy uncertainty,this means that empirical results are credible.3.From the point of the transition channels of uncertainty shocks,classical"real option" effect and "financial market friction" channel which is developed recently.Research results show that,one standard deviation positive economic policy uncertainty shock has negative impact on fixed assets investment,uncertainty shocks make firms more "cautious" about investment decisions,meanwhile,firms will also "delay" their investment,so the overall investment level will decline,and "real option" effect is basically tenable.More importantly,this thesis examines the impact of uncertainty shocks on marcoeconomy through financial market friction channel from the empirical point of view,this is rarely involved in the research of domestic scholars.The results show that because of the imperfect of financial market,positive uncertainty shocks do amplify the credit spread in the financial market,that is the risk premium of investor claim will raise,and this leads to the external financing cost increase,firms will reduce their investment spending substantially.The important role of financial market friction channel also provides empirical evidence to build economic theoretical model,which is used to study the impact of uncertainty shocks on macro economy.4.In addition,from the perspective of the effect of monetary policy,monetary shocks also have clear time-varying impacts on output,and compared with 2009,the effect of monetary policy on the economy has weakened.By comparing,we find that the reason of weakening effectiveness partly maybe the high level of uncertainty alter the decision-making behavior in the economy,thereby the policy effect of macro-regulation is weakening.Economics and Policymakers should concern the impact of uncertainty shocks on policy effectiveness,policy formulation and implementation also should take into account of uncertainty induced by policy adjustments.Finally,based on the conclusions,this thesis analyzes the policy implications furtherly,we also give future research.