The impact of high-frequency economic policy uncertainty on China’s macroeconomy: evidence from mixed-frequency VAR

We investigate the impact of high-frequency economic policy uncertainty on investments of state-owned and private-owned enterprises (SOEs and POEs), as well as short-, medium- and long-term bank loans in China by employing the mixed-frequency vector autoregression model. Impulse response analysis suggests that monthly economic policy uncertainty is allowed to have heterogeneous effects on investments and bank loans in China. Variance decomposition analysis shows that aggregating monthly economic policy uncertainty into the quarterly level underestimates the influence of economic policy uncertainty in shaping China’s macroeconomy at business cycle frequencies. By further decomposing the SOEs’ investment, we reveal that the effects of economic policy uncertainty on SOEs’ investment are strengthened due to the existence of the injection of the government investment into SOEs. Trade policy uncertainty has a similar impact on China’s investments and bank loans as economic policy uncertainty. The counterfactual analysis shows that the impact of economic policy uncertainty on China’s investments and bank loans is alleviated when the interest rate channel exists. Our major conclusions are insensitive to a series of robustness checks.