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Empirical Economics

, Volume 57, Issue 6, pp 1959–1978 | Cite as

Asymmetric dynamics of insurance premium: the impacts of output and economic policy uncertainty

  • Rangan Gupta
  • Amine Lahiani
  • Chi-Chuan Lee
  • Chien-Chiang LeeEmail author
Article

Abstract

This paper investigates the asymmetric and nonlinear transmission of real output and economic policy uncertainty to insurance premiums for the US economy over the annual period of 1980–2014. Using the most up-to-date nonlinear autoregressive distributed lags framework, we simultaneously examine short- and long-run asymmetric responses of insurance premiums through positive and negative partial sum decompositions of changes in the explanatory variables. Our empirical results reveal that real output and economic policy uncertainties both affect insurance premiums in an asymmetric and nonlinear manner, but the transmission mechanism is not the same. As to the impact of real output, we find that an increase in real output leads to enhancing the insurance premiums, while a decrease in output has a greater impact causing insurance premiums to move down. For the impact of economic policy uncertainty, the results also suggest that total and non-life insurance premiums increase with rising uncertainty, while life insurance premiums decrease with rising uncertainty. These results have significant implications for insurance-related econometric analysis, investment decisions, forecasting, and policy-making.

Keywords

Insurance premiums Real output Economic policy uncertainty NARDL 

JEL Classification

C32 F42 G22 O16 

Notes

Acknowledgements

The authors are grateful to the comments made by Editor and two anonymous referees for our paper. Chien-Chiang Lee is grateful to the Ministry of Science and Technology of Taiwan for financial support through Grant MOST 104-2628-H-110-001. The usual disclaimer applies and views herein are the sole responsibility of the authors.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Rangan Gupta
    • 1
  • Amine Lahiani
    • 2
    • 3
  • Chi-Chuan Lee
    • 4
  • Chien-Chiang Lee
    • 5
    Email author
  1. 1.Department of EconomicsUniversity of PretoriaPretoriaSouth Africa
  2. 2.Department for Management of Science and Technology DevelopmentTon Duc Thang UniversityHo Chi Minh CityVietnam
  3. 3.Faculty of Business AdministrationTon Duc Thang UniversityHo Chi Minh CityVietnam
  4. 4.School of ManagementBeijing Normal University ZhuhaiZhuhaiChina
  5. 5.Department of FinanceNational Sun Yat-sen UniversityKaohsiungTaiwan, ROC

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