Economic Policy Uncertainty and Oil Price Uncertainty: An Empirical Analysis on Selected Asia-Pacific Economies

Abstract

Purpose

This paper examines the impact of Economic Policy Uncertainty (EPU) and Oil Price Uncertainty (OPU) on inflation in five Asian Pacific countries, including Pakistan, China, India, Japan, and South Korea.

Methodology

Data was collected from January 2010 to August 2024. The analysis employed the Autoregressive Distributed Lag (ARDL) framework, using broad money and the output gap as control variables to account for monetary and demand-side impacts. 

Findings

The results indicate that EPU exerts a significant inflationary effect in Pakistan and India, while OPU remains insignificant in both countries. Broad money also drives inflation in India. In China, OPU reduces CPI inflation, likely due to policy interventions. Japan exhibits a negative output gap effect, with EPU and OPU insignificant. For South Korea, EPU has a disinflationary short-run impact, but no long-run association is observed.

Conclusion

The results, in general, point to country-specific dynamics, which reflect varying monetary policy frameworks, institutional credibility, and resilience to uncertainty shocks, with significant implications for inflation management in the Asia-Pacific region.

Implication

The policymakers should endeavor to decrease the uncertainty to balance inflation.  Monetary policy should be rigorous to accomplish long-term price growth perspectives.  Mitigate the external oil shocks by inventing and executing novel energy techniques.