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Economic policy uncertainty and China’s growth-at-risk

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  • Gu, Xin
  • Cheng, Xiang
  • Zhu, Zixiang
  • Deng, Xiang

Abstract

The impact of policy uncertainty on China’s economic activity has received considerable attention. To appraise the role of economic policy uncertainty (EPU) in China’s economic downturns, we estimate the predictive distribution of China’s GDP growth as a function of EPU from 1996Q1 to 2020Q2, using quantile regression and fitted skew-t distribution. We find that the entire predicted distribution of GDP growth conditional on the EPU index evolves over time beyond the central tendency. The EPU index alters the predicted distribution’s higher moments, amplifies the growth tail risk, and improves the model’s forecast performance; this could serve as a basis for preemptive action. Our results are robust across other alternative output and EPU variables.

Suggested Citation

  • Gu, Xin & Cheng, Xiang & Zhu, Zixiang & Deng, Xiang, 2021. "Economic policy uncertainty and China’s growth-at-risk," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 452-467.
    • Handle: RePEc:eee:ecanpo:v:70:y:2021:i:c:p:452-467
    DOI: 10.1016/j.eap.2021.03.006
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    More about this item

    Keywords

    Economic downturn; Economic policy uncertainty; Conditional predictive distribution; Nonlinear forecasting model; China;
    All these keywords.

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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