This paper examines the time-varying impact of economic policy uncertainty on China’s financial stress using monthly data from March 2000 to March 2025. China’s Financial Stress Index (FSI) is constructed from six financial market indicators, while the Economic Policy Uncertainty (EPU) index is taken from the China EPU database developed by Baker, Bloom, and Davis. After conducting unit root tests and lag order selection, this paper employs a Time-Varying Parameter Vector Autoregression (TVP-VAR) model to analyze the dynamic relationship between EPU and FSI. The results show that the effect of economic policy uncertainty on China’s financial stress is clearly time-varying. During the 2015 stock market turbulence and the later sample period around 2024, EPU exerts a relatively strong positive effect on financial stress, while during the global financial crisis and the initial stage of COVID-19, the response is weaker or even negative. Robustness analysis based on a TVP-VAR(1) specification confirms the main findings. Overall, the results suggest that China’s financial system has become more sensitive to policy uncertainty in recent years. This paper provides empirical evidence for understanding the dynamic relationship between policy uncertainty and financial stability, and offers implications for financial risk monitoring and policy coordination.

Yedong Zhang. The Time-Varying Impact of Economic Policy Uncertainty on China's Financial Stress: Evidence from a TVP-VAR Model. Academic Journal of Business & Management (2026), Vol. 8, Issue 5: 1-6. https://doi.org/10.25236/AJBM.2026.080501.

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