The Research On The Economic And Financial Effects Of Policy Uncertainty And Its Transmission Mechanism

Since the global financial crisis in 2008,governments have embarked on a series of policy changes to promote economic recovery.However,in the past eight years,the world economy recovers much more slowly than expected.On this basis,concerns about whether policy uncertainty contributed to slow recoveries have intensified.The sharp rise in foreign policy uncertainty is due not only to large-scale policy changes,but also to unanticipated economic and political events such as Britain exiting from the EU and Trump wining presidency in the United States.As the world's second largest economy,China is bound to suffer from spillover effects of policy uncertainty abroad.Meanwhile,the adjustment of policy scheme accompanied by economic restructuring further exacerbates the extent of domestic policy uncertainty.Based on this,we focus on researching the economic and financial effects of policy uncertainty and its transmission mechanism to make deep research and discussion in the following aspects and come to the theoretical and empirical results.First,by introducing the fiscal and monetary policy rules with random variables to a new Keynesian model,we investigate the economic effects of fiscal and monetary policy uncertainty on real economies.Via changing household habit formation,dynamic enterprise adjustment costs and depreciation rates,we further investigate the channels through which the policy uncertainty shocks affect economic behaviors.In the expansion of research,we introduce the condition of zero lower bound and abnormal shocks to analyze the formation of economic effects of policy uncertainty.Main findings are as follows:(1)Policy uncertainties have negative effects on output,investment,consumption and other entity variables.(2)Policy uncertainties affect real economies through labor risk aversion coefficient,habit formation and enterprise adjustment cost.The economic effect through enterprise adjustment cost is the most significant and more pronounced for households with higher habit formation.(3)The economic effects of policy uncertainty can be greater under the constraint of zero lower bound and superimposed or offset with abnormal shocks.Second,we investigate the financial effects of policy uncertainty on stock market based on stochastic process of policy and asset pricing model.By introducing the household behaviors of consumption and asset allocation,we create theoretical conduction model containing policy uncertainty,micro-subjective behaviors and stock prices.Via parameter calibration and numerical solution,the optimal decisions for the household and the government are determined.By static analysis,we investigate time-varying characteristics of stock risk with different household decision-making parameters and policy uncertainty parameters.Through dynamic simulation,we investigate how much policy uncertainty can explain the equity premium puzzle.Main findings are as follows:(1)Policy uncertainty affects governments 'decision-making through stochastic adjustment costs and reduces the optimal consumption and investment ratio through expectation,which is significantly strengthened when the policy is promulgated.(2)Policy uncertainty can not only affect government and household decision-making behaviors,but also affect the profitability of enterprises and stochastic discount rate,which then causes the rise of stock risk premium,volatility and jump risk.(3)The dynamic path that contains policy uncertainty can well simulate China's equity premium;(4)The impact of policy uncertainty on stock prices depends on the habit formation,relative risk aversion and the ratio of risky assets in the investment portfolio.Last but not least,we measure the real effects of policy uncertainty on China' s stock market index and individual stock risk using Economic Policy Uncertainty Index(EPU)proposed by Baker et al.(2016),which makes quantitative analysis of the financial effects of policy uncertainty.Main methods and findings are as follows:(1)EPU index proves to be a good indicator to characterize China's uncertainties on economic and policy levels by analyzing the applicability of EPU index in China,as well as a good pricing factor in Chinese stock market through portfolio analysis.(2)We investigate the dynamic linkage between stock market and policy uncertainty by using DCC-MGARCH model,as well as the volatility spillover effect on these two series using VARMA-BEEK-MGARCH model.The empirical results show that the dynamic correlation is generally negative and the volatility spillover effect is asymmetric,that is,the volatility spillover from stock market to policy uncertainty is not only temporal but also permanent,and the volatility spillover effect from economic policy uncertainty to stock market is only temporal.(3)We use panel model and dummy variable regression to analyze the effect of policy uncertainty on individual stock risk characteristics.Meanwhile,the subdivided effects are intensively analyzed based on the enterprise heterogeneity on micro level and the external environment on macro level.The results show that policy uncertainty plays a significant role on the parameters of stochastic discount model,which validates the applicability of the theoretical model in China.Companies that are non-state-owned,have lower return on invested capital and lower asset growth rate manifest greater stock risk when policy uncertainty is higher.The magnitude of policy uncertainty to stock risk is larger when the economy is weaker and the policy environment is more unstable.Conclusions of this dissertation have rich policy implications.First of all,we develop comprehensive theoretical models and diversified empirical models to measure the economic and financial effects of policy uncertainty,which is conducive to an overall understanding of the risk characteristics of policy uncertainty.Second,when faced with the economic effects of policy uncertainty,the government should not only stimulate public entrepreneurship and innovation through the positive effects,but also pay enough attention to controlling economic risks caused by policy uncertainty.Futuremore,as the existence of amplified effects of policy uncertainty on economic shock under the condition of zero lower bound,the government should establish the policy coordination mechanism and macro-prudential framework.Last but not least,the government and regulators should attach importance to the influence of micro-subjective behaviors as to financial effects of policy uncertainty,which can strengthen the guidance of the micro-subject expectations to improve the rationality of investors and the ability to interpret the policy.