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Can economic policy uncertainty predict financial stress? A MIDAS approach

Author

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  • Xiong Xiong
  • Jiakou Liu
  • Zhifeng Liu

Abstract

In this article, by using the mixed-frequency data sampling (MIDAS) model, we investigate whether economic policy uncertainty (EPU) can predict financial stress. Our estimation results show that EPU has a significant positive effect on the future financial stress, indicating that EPU is a determinant of financial stress. Moreover, the out-of-sample prediction results show that the MIDAS model performs better than the traditional time-series OLS model.

Suggested Citation

  • Xiong Xiong & Jiakou Liu & Zhifeng Liu, 2022. "Can economic policy uncertainty predict financial stress? A MIDAS approach," Applied Economics Letters, Taylor & Francis Journals, vol. 29(1), pages 22-29, January.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:1:p:22-29
    DOI: 10.1080/13504851.2020.1854664
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    Cited by:

    1. Altınkeski, Buket Kırcı & Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2022. "Financial stress transmission between the U.S. and the Euro Area," Journal of Financial Stability, Elsevier, vol. 60(C).
    2. Gong, Xu & Sun, Yi & Du, Zhili, 2022. "Geopolitical risk and China's oil security," Energy Policy, Elsevier, vol. 163(C).
    3. Kaihua Wang, 2024. "Economic policy uncertainty and green finance: evidence from frequency and quantile aspects," Economic Change and Restructuring, Springer, vol. 57(1), pages 1-26, February.

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