ARTICLE | doi:10.20944/preprints202011.0491.v1
Subject: Social Sciences, Accounting Keywords: Financial Innovation; Economic Policy Uncertainty; ARDL; NARDL; Toda-Yamamoto
Online: 18 November 2020 (23:53:19 CET)
The study's motivation is to gauge the nexus between economic policy uncertainty and financial innovation for the period 2004M1 to 2018M12 in BRIC nations. For establishing a long-run cointegration study applied Autoregressive Distributed Lagged (ARDL) and asymmetry effects of economic policy uncertainty investigated following nonlinear framework known as NARDL. Furthermore, directional causality is established by performing a non-granger causality test. Cointegration test results of Fpss, Wpss, and tBDM confirmed the long-run association between EPU and financial innovation. On the other hand, the Wald test results proved asymmetry effects furring from EPU to financial innovation both in the long-run and short-run. Referring to asymmetry effects that positive and negative shocks in financial innovation, the study revealed that negative linkage between shocks in EPU and financial innovation in the long-run but short-run effects are insignificant. Furthermore, financial innovation measured by R&D investment exhibits positive linked with shocks in EPU, implying that uncertainty induces innovation in the economy. Refers to directional causality estimation, the study revealed evidence supporting the feedback hypothesis between EPU and financial innovation in all sample countries.