The effects of economic policy and political uncertainties on economic activities

This paper explores the dynamic effects of economic policy uncertainty (EPU) and political stability (PS) on business fixed investment (BFI), real estate activities (RE), financial market activities (FIN) and patent applications (PAT) using annual data from 19 major high-income and emerging economies from 1996 to 2016. By applying panel vector autoregression (PVAR) and dynamic least squares (DOLS) methods, the results show that a positive shock to EPU triggers a negative response from BFI, RE, FIN and PAT in the short-run. In addition, I find that higher levels of EPU significantly decrease BFI, RE and FIN in the long-run. The findings also suggest that BFI, RE and PAT respond positively to a shock in PS in the short-run and there is a positive, long-run relationship between PS, RE and FIN.