Research On Risk Spillovers Of Economic Policy Uncertainty And Financial Markets In China And The United States

Under the background that the financial business of various countries is becoming more and more closely related and the relationship between various financial markets and the real economy is becoming more and more complicated,the cross-market and cross-border correlation of financial business is further strengthened,which not only provides financial support for economic development,but also Enhanced cross-border and cross-market spillovers of financial risks.Financial risks are rapidly contagious through business connections and economic and trade connections,triggering risk resonance in the financial market.Improper control may even lead to system collapse,leading to chaos in the economic order,and systemic financial risks are highly concerned by policy authorities.The deepening of economic integration between China and the United States and the continuous deepening of China’s financial reform have provided the possibility for the resonance of the financial markets of China and the United States.In recent years,major events such as Sino-US trade frictions,the new crown epidemic and the Russian-Ukrainian conflict have caused economic policy uncertainty(EPU)to continue to rise,and aggravated financial market volatility and risk spillovers.This paper takes the EPU,stock market and foreign exchange market of China and the United States into the research framework,and investigates the time domain and frequency domain characteristics of risk spillovers under this framework.Based on the availability of data,this paper selects the monthly data from January 2000 to April 2022,and calculates the total spillovers and directional spillovers under the framework from static,dynamic and connectedness network aspects by using the time-frequency domain spillovers index model from the perspective of the rate of change of EPU and financial market returns.The empirical results show that the static risk spillover level of China and the US EPU growth rates and financial market returns is 24.33%,which has significant cross-market and cross-border spillover effects.There is a two-way spillover and asymmetry between EPU and the financial market,and the financial market has a greater spillover effect on EPU.Breaking down the spillovers by country,it is observed that both the US EPU and financial markets have stronger spillovers than China.Specifically,the net risk spillover level of the US foreign exchange market and stock market is positive,and they are the main exporters of risk.It is decomposed into the frequency domain and found that in this system,the US foreign exchange market is the main exporter of short-term high-frequency(one to three months)risk,while the US stock market is the main exporter of long-term low-frequency(more than three months)risk..In the correlation network analysis,China Economic Policy Uncertainty(CEPU)and U.S.Economic Policy Uncertainty(AEPU)are important hubs in the risk transmission chain.Among them,AEPU has obvious spillover effects on China’s financial market,while CEPU has obvious spillover effects on the United States.Spillover from financial markets is very limited.In the static analysis,the short-term total spillover intensity is higher than the long-term total spillover intensity;in the dynamic analysis,it is also found that the change of the total spillover time-domain curve is mainly dominated by the short-term high-frequency spillover curve.It is worth noting,however,that spillovers during the 2008 global financial crisis were dominated by long-cycle components.These findings provide important insights for policymakers’ short-and long-term decisions.