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Is there an effect of policy-related uncertainty on inflation? evidence from the United States under Trump

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  • Refk Selmi
  • Jamal Bouoiyour
  • Mark E. Wohar
  • Youssef Errami

Abstract

This study bridges the existing literature on the macroeconomic effects of policy-related uncertainty and the literature on inflation dynamics and provide fresh insights on the impacts of policy-related uncertainty under President Donald Trump -coming from unforeseen events and actions of decision makers- on unanticipated inflation changes. With the increasingly volatile environment, developing effective resilience plan and hedging practices against rising policy uncertainty become fundamental in designing sensible risk management strategies. This paper compares the inflation-hedging abilities of oil, renewable energy and major precious metals (gold, palladium, platinum and silver). Under Trump, both economic and monetary policy uncertainties seem important for the observed changes in inflation. In times of rising uncertainty, doubts rise about the ability and the commitment of policy makers to deliver on their promises. In other words, policy-related uncertainties distort the Federal Reserve’s monetary policy and harm its credibility. To reduce the costs of inflation surprises, an inflation-protecting asset allocation analysis is conducted. Gold and oil have proved to offer the most effective hedge against inflation under Trump and during periods of inflationary pressures.

Suggested Citation

  • Refk Selmi & Jamal Bouoiyour & Mark E. Wohar & Youssef Errami, 2020. "Is there an effect of policy-related uncertainty on inflation? evidence from the United States under Trump," Applied Economics, Taylor & Francis Journals, vol. 52(35), pages 3858-3873, July.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:35:p:3858-3873
    DOI: 10.1080/00036846.2020.1723786
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    Cited by:

    1. Kyriazis, Nikolaos & Papadamou, Stephanos & Tzeremes, Panayiotis & Corbet, Shaen, 2024. "Examining spillovers and connectedness among commodities, inflation, and uncertainty: A quantile-VAR framework," Energy Economics, Elsevier, vol. 133(C).
    2. Oluwatoyin Abidemi Somoye & Mehdi Seraj & Huseyin Ozdeser & Muhammad Mar’I, 2023. "Quantile relationship between financial development, income, price, CO2 emissions and renewable energy consumption: evidence from Nigeria," Letters in Spatial and Resource Sciences, Springer, vol. 16(1), pages 1-25, December.
    3. Mukhtarov, Shahriyar & Yüksel, Serhat & Dinçer, Hasan, 2022. "The impact of financial development on renewable energy consumption: Evidence from Turkey," Renewable Energy, Elsevier, vol. 187(C), pages 169-176.
    4. Wang, Yonglian & Wang, Lijun & Pan, Changchun & Hong, Songzhi, 2022. "Economic policy uncertainty and price pass-through effect of exchange rate in China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    5. Ren, Yi-Shuai & Klein, Tony & Jiang, Yong & Ma, Chao-Qun & Yang, Xiao-Guang, 2024. "Dynamic spillovers among global oil shocks, economic policy uncertainty, and inflation expectation uncertainty under extreme shocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).

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