The resonance effect of economic policy uncertainty worldwide: A time–frequency analysis

This paper investigates global systematic risk through the resonance effect of economic policy uncertainty (EPU) across 11 major countries worldwide. We propose a theoretical framework to explain the potential cross-correlations of EPU between countries and how they may change with different time scales. In the empirical analysis, we use 326 months of EPU data from January 1997 to February 2024, and decompose the time series into high-, medium-, and low-frequency components to provide insights from a multi-scale perspective. Random matrix theory (RMT) is then applied to analyze the frequency ranges where these cross-correlations emerge. The results reveal that strong cross-correlations in EPU across countries exist, with the source of the correlations varying by frequency. Notably, the cross-correlation is most pronounced and highly robust at the low frequency. It suggests that long-term economic policy trends and global economic conditions have a substantial and widespread impact across countries, highlighting the interconnected nature of global economies and the importance of considering these correlations in international economic policymaking.