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Information Flow Analysis between EPU and Other Financial Time Series

School of Economics and Commerce, South China University of Technology, Guangzhou 510006, China
Entropy 2020, 22(6), 683;
Received: 6 May 2020 / Revised: 12 June 2020 / Accepted: 16 June 2020 / Published: 18 June 2020
(This article belongs to the Special Issue Processes with Memory in Natural and Social Sciences)
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. View Full-Text
Keywords: EPU; transfer entropy; exchange rate EPU; transfer entropy; exchange rate
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Yao, C.-Z. Information Flow Analysis between EPU and Other Financial Time Series. Entropy 2020, 22, 683.

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