Dynamic association of economic policy uncertainty with oil, stock and gold: a wavelet-based approach

Abstract

PurposeThis research unfolds a holistic association between economic policy uncertainty (EPU) and three important markets (oil, stock and gold) in the Indian context. To do same, the current study uses the monthly dataset of each variable spanning from November 2005 to March 2022.Design/methodology/approachThe authors have portrayed the wavelet-based coherence, correlation and covariance plots to explore the interaction between EPU and markets' behavior. Then, a wavelet-based quantile on quantile regression model and wavelet-based Granger causality has been applied to examine the cause-and-effect relation and causality between the EPU and markets.FindingsThe authors’ findings report that the Indian crude oil buyers do not need to consider Indian EPU while negotiating the oil deals in the short term and medium term. However, in case of the long-term persistence of uncertainty, it becomes difficult for a buyer to negotiate oil deals at cheap rates. EPU causes unfavorable fluctuation in the stock market because macroeconomic decisions have a substantial impact on it. The authors have also found that gold is a gauge for economic imbalances and an accurate observer of inflation resulting from uncertainty, showing a safe haven attribute.Originality/valueThe authors’ work is original in two aspects. First, their study solely focused on the Indian economy to investigate the impact and causal power of Indian EPU on three major components of the Indian economy: oil, stock and gold. Second, they will provide their findings after analyzing data at a very microlevel using a wavelet-based quantile on quantile and wavelet-based Granger causality.

Analysis of the Impact of Economic Policy Uncertainty on Environmental Sustainability in Developed and Developing Economies

“…EPU has risen over time in industrialized and developing nations over the past 20 years [38]. Figure 2 displays the trends in EPU in selected developed and developing economies.…”

Dependence Structure and Time–Frequency Impact of Exchange Rates on Crude Oil and Stock Markets of BRICS Countries: Markov-Switching-Based Wavelet Analysis

“…Lastly, the study suggests that the stock market of the Gulf Cooperation Council has the potential to outperform the stock markets of oil-importing countries in the long term. Soni et al (2023) used wavelet-based quantile and wavelet-based Granger causality to investigate the causal relationship and causality between economic policy uncertainty (EPU) and markets. According to the findings, when negotiating oil deals in the short and medium term, Indian crude oil buyers do not need to take into account Indian EPU.…”