The effects of foreign uncertainty shocks on China's macro-economy: Empirical evidence from a nonlinear ARDL model

This paper investigates the impacts of uncertainty on China's macro-economy by a nonlinear cointegrating autoregressive distributed lag (NARDL) model. The three widely used uncertainty proxies economic policy (EPU), the financial markets (VIX), and energy market (OVX) are considered, and the short-run and long-run nonlinear asymmetric relationship between these three kinds of uncertainty and macroeconomic variables are examined. The empirical results provide significant evidence of short-run relationship between all types of uncertainty shocks and the China's macro-economy except the effects of OVX on China's output. Furthermore, in the long run, the results show that the asymmetric VIX seems to be the most relevant determinative uncertainty of China's macro-economy; the economic policy uncertainty has a long-run asymmetric impact on China's inflation; the increases in oil price uncertainty may damage China's output and the decreases in the uncertainty of the energy market may lead to the rises in money supply. The findings of this study have significant implications for investors and policy makers who are interested in uncertainty risks and who look forward to making more effective decisions. (C) 2019 Elsevier B.V. All rights reserved.