Financial conditions and Sino-US tensions: A Granger causality analysis of diverging financial condition indicators

The study reveals that US financial conditions consistently Granger-cause variations in Sino-US political tensions, with the reverse causality observed only when using the Chicago Fed’s National Financial Conditions Index, while no such impact is found with the newly introduced US - Fed Financial Conditions Impulse on Growth Index, highlighting the importance of using diverse financial indicators to assess the impact of political tensions. • The causal link between US financial conditions and US-China political tensions is evaluated at quantiles. • Two datasets are used to describe US financial conditions. • Financial conditions cause political tensions, but reverse causality varies by indicator. • The causality is significant at extreme quantiles, but not at middle quantiles.