The Effect of Economic Policy Uncertainty on Inter-Industry Risk Spillover : Evidence from Quantile-on-Quantile Analysis

The study examines the effect of economic policy uncertainty (EPU) on nonlinear risk spillover across 24 Chinese industry sectors over the period 2008-2022. We employ tail-event driven network method to measure nonlinear risk spillover of inter-industry and quantile-on-quantile regression to reveal the effect of EPU on the risk spillover. We find that the spillover network of 24 industries is more tightly linked when extreme events occur than stable periods. Software and service industry is the greatest risk contributor, followed by semiconductor and semiconductor equipment. We document the presence of the heterogeneous and asymmetric effects of EPU on risk spillover across quantiles. Especially, risk spillover is sensitive to EPU in high quantiles. The finding highlights that the risk propagation in the real industry sectors and the effect of EPU should be considered in the formulation of industrial policies