The impact of financial sanctions on economic policy uncertainty: Global evidence

Abstract

Based on panel data from 20 countries from 1991 to 2020, this study uses the difference-in-differences method to empirically test the impact of financial sanctions on economic policy uncertainty in sanctioned countries. The study shows that financial sanctions have significantly increased the economic policy uncertainty of sanctioned countries. This impact is mainly achieved through mechanisms such as increasing the national risk of sanctioned countries, reducing their exchange rate stability, and restricting their international trade. The study also shows that the impact of financial sanctions on economic policy uncertainty is more significant in countries with a high degree of financial globalization and a heavy foreign debt burden. The effect of multilateral sanctions is also more significant than unilateral sanctions. This study provides useful inspiration for policy responses to financial sanctions.