Impact of Economic Policy Uncertainty on Price Level

This paper adopts the vector autoregressive model to analyze the impact of economic policy uncertainty on price level by using policy uncertainty index proposed by Baker. The impulse response results show that policy uncertainty has a negative impact on price level and classification price index. The impact on PPI was stronger and shorter than on CPI. The consumer price index of rural residents is affected by the economic policy uncertainty more than the consumer price index of city residents is. The more consumers spend on consumer goods, the greater impact economic policy uncertainty has on consumer goods price index. The variance decomposition results show that the contributions of economic policy uncertainty to the price index changes were different. The contribution to CPI and its classification index is higher than that to PPI and its classification index. The contribution to the change of the rural residents' consumer price index is higher than that of the urban residents' consumer price index. There is little difference in the contribution of each consumer price index.