Can economic policy uncertainty predict financial stress? A MIDAS approach

ABSTRACT

In this article, by using the mixed-frequency data sampling (MIDAS) model, we investigate whether economic policy uncertainty (EPU) can predict financial stress. Our estimation results show that EPU has a significant positive effect on the future financial stress, indicating that EPU is a determinant of financial stress. Moreover, the out-of-sample prediction results show that the MIDAS model performs better than the traditional time-series OLS model.

KEYWORDS:

• Economic policy uncertainty
• financial stress
• mixed frequency
• MIDAS
• EPU

JEL CLASSIFICATION:

• E60
• G10
• G18

Acknowledgments

This research was supported by the National Natural Science Foundation of China (71861008, 71532009, 71790594), the Foundation and Applied Foundation Research Program (Natural Science) of Hainan Province - High-level Talent Project (2019RC151), the Natural Science Foundation of Hainan Province (718QN221).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Due to space limitations, we did not report all these results.

Additional information

Funding

This research was supported by the National Natural Science Foundation of China [71861008, 71532009, 71790594], the Foundation and Applied Foundation Research Program (Natural Science) of Hainan Province - High-level Talent Project [2019RC151], the Natural Science Foundation of Hainan Province [718QN221].