Information Flow Analysis between EPU and Other Financial Time Series

We investigate the strength and direction of information flow among economic policy uncertainty (EPU), US imports and exports to China, and the CNY/US exchange rate by using the novel concept of effective transfer entropy (ETE) with a sliding window methodology. We verify that this new method can ca...

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Bibliographic Details
Published inEntropy (Basel, Switzerland) Vol. 22; no. 6; p. 683
Main Author Yao, Can-Zhong
Format Journal Article
LanguageEnglish
Published Switzerland MDPI AG 18.06.2020
MDPI
Subjects
Causality
Cointegration analysis
Economic analysis
Economic conditions
Entropy
EPU
exchange rate
Fault diagnosis
Foreign exchange rates
Information flow
International trade
Random variables
Securities markets
Stock exchanges
Time series
transfer entropy
United States > US
China
exchange rate
transfer entropy
EPU
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Summary:We investigate the strength and direction of information flow among economic policy uncertainty (EPU), US imports and exports to China, and the CNY/US exchange rate by using the novel concept of effective transfer entropy (ETE) with a sliding window methodology. We verify that this new method can capture dynamic orders effectively by validating them with the linear transfer entropy (TE) and Granger causality methods. Analysis shows that since 2016, US economic policy has contributed substantially to China-US bilateral trade and that China is making passive adjustments based on this trade volume. Unlike trade market conditions, China's economic policy has significantly influenced the exchange rate fluctuation since 2016, which has, in turn, affected US economic policy.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
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content type line 23
ISSN:1099-4300
1099-4300
DOI:10.3390/e22060683