The Influence Of Economic Policy Uncertainty On China’s Asset Price

With the accelerated reform of the international order,the world is facing increasingly prominent uncertainties,and China’s economy is constantly affected and impacted by uncertainties.Economic policy uncertainty represents the unpredictable part of economic policy changes,which usually depress investment,depress asset prices and disrupt the normal order of financial markets.In-depth discussion of the impact of economic policy uncertainty on China’s asset prices is helpful to reduce the adverse impact of uncertainty,mitigate the volatility of asset prices,and maintain China’s economic and financial stability.Therefore,this topic has important theoretical and practical significance.Throughout the existing research results,uncertainty has gradually been subdivided into specific categories from general and fuzzy concepts in the early stage,and a systematic and comprehensive theoretical system has been developed to create effective measurement indicators.Economic policy uncertainty represents the unpredictable part of economic policy change.Specifically,it means that people cannot predict if,when and how policies will change.It is generally believed that the uncertainty of economic policy will lead to the delay and shelving of investment decisions and have a negative impact on asset prices.However,a small number of studies have proposed the positive impact of uncertainty from the perspective of uncertainty promoting innovation.Theoretical analysis shows that economic policy uncertainty can negatively affect asset prices through real option effect and financial friction.It has a positive influence on asset price through the growth option effect.The precautionary savings effect has a negative impact on the price of manufacturing related assets and a positive impact on safe assets.Based on literature review and theoretical analysis,this study selected asset prices such as stocks,real estate and bulk commodities to deeply explore the impact of economic policy uncertainty on asset prices,and to understand the circumstances under which economic policy uncertainty would drive down or push up asset prices.This paper discusses the influence of economic policy uncertainty from a more comprehensive perspective and avoids one-sided understanding of uncertainty.First,the paper discusses the impact of economic policy uncertainty on stock prices in China.By estimating TVP-SV-VAR model based on the relevant data of China from 2003 to 2019,we find that economic policy uncertainty has not only a single inhibitory effect on investment,but also has a positive impact on investor sentiment and stock price in some periods.Through the construction of TVAR model,it is found that in general economic growth,uncertainty will have a negative impact on investor sentiment and stock price,while in high economic growth,uncertainty can encourage investor sentiment and promote stock price rise.Studies show that uncertainty is not always a negative factor for economic development,but can have a positive impact in a fast-developing economic environment.Secondly,it discusses the impact of economic policy uncertainty on China’s real estate prices.The PVAR model is constructed by selecting quarterly data from 1998 to2019 to explore the impact of economic policy uncertainty on property prices in China and other East Asian countries.In order to better compare the difference between the impact of economic policy uncertainty on housing prices in East Asian countries and western countries,relevant data in western countries are selected for empirical research.It is found that in western countries,real estate will lose value in a high uncertainty environment.However,in East Asian countries such as China,real estate can maintain its value and even appreciate in the face of rising uncertainty,which is a good value storage tool to hedge against uncertainty and can be regarded as a safe asset.On this basis,the panel data of 31 provinces(municipalities directly under the Central Government and autonomous regions)in China from 2004 to 2017 are selected,and the PVAR model is used to explore the impact of economic policy uncertainty on the real estate prices of each province in China.The study found that the relatively backward level of financial development in central and western Provinces of China resulted in the insufficient supply of financial safe assets.As a safe asset,real estate has a good value of preservation in an uncertain environment.However,in eastern provinces with high level of financial development and openness,financial safe assets are relatively sufficient,and real estate does not have the property of safe assets,so it will lose value in an environment with high uncertainty.Finally,the impact of economic policy uncertainty on China’s commodity prices is discussed.Monthly data from 2012 to 2019 are selected to estimate the TVP-SV-VAR model and obtain the time-varying impact of economic policy uncertainty on China’s commodity prices based on the consideration of international price transmission.It is found that the gradual separation of domestic and international prices is not due to the weakening of the transmission effect of international prices,but to the strengthening of the influence of domestic factors.Since 2014,economic policy uncertainty has had a significant impact on domestic prices of bulk commodities,which is an important reason for the separation of domestic prices from international prices.Higher economic policy uncertainty can have an impact on commodity prices by prompting companies to cut future output and accelerate current production.On this basis,monthly data from 2014 to 2019 are selected and TVP-SV-VAR model is used to explore the impact of economic policy uncertainty on the prices of minerals,energy and agricultural products in China.It is found that economic policy uncertainty is an important factor affecting mineral and energy prices in China.Economic policy uncertainty firstly promotes and then restrains mineral prices.It had a dampening effect on energy prices,and have less impact on agricultural prices.Under the background of increasing economic policy uncertainty,it is the key to maintain China’s economic and financial stability to mitigate the impact of economic policy uncertainty on asset prices and prevent the drastic fluctuation of asset prices.Therefore,this paper proposes to improve the measurement and monitoring mechanism of economic policy uncertainty,reduce the transmission effect of international events on China’s economic policy uncertainty,deepen legal construction and government affairs openness,improve the efficiency of economic policy,optimize the investment environment,improve the supply of safe assets,and promote the development of the commodity market.