Economic Policy Uncertainty in Turkey

The latest addition to the Economic Policy Uncertainty index (EPU). This time is on Turkey, the country who’s economy is negatively impacted by policy uncertainty in 2018.

IMF researchers La-Bhus Fah Jirasavetakul and Antonio Spilimbergo has just posted a new woring paper explaining their EPU Turkey edition:

Uncertainty over economic policy plays a key role in economic outcomes. But evidence and quantification for emerging markets are elusive because of measurement and reverse causality issues. In this paper, we construct a news-based economic policy uncertainty (EPU) index for Turkey and assess how it affects Turkish firms. To disentangle the issues of endogeneity and reverse causality, we use a difference-in-differences approach, exploiting the fact that firms with a high share of irreversible investment are more exposed to policy uncertainty. In sectors with large irreversible investment EPU has a greater effect on growth, investment, and leverage. The results are robust to different definitions of investment irreversibility, lag structure, and selection of sectors.

However, their EPU index has yet to cover the volatile 2018… From their intro:

The EPU index is constructed on a monthly basis from 1996 to 2017, with the aim to examine how it has evolved over time and the relations between the constructed index and economic developments over the past two decades.

Our EPU index differs from most of the EPU indices constructed for other countries because it mainly uses foreign newspapers rather than Turkish newspapers as the primary source.4 This is important as foreign newspapers directly capture international perceptions on Turkey’s EPU, which could be more relevant given the connection between the economy and foreign sentiment. In addition, foreign news sources span longer periods than Turkish newspapers

Here is the full paper:

Economic Policy Uncertainty in Turkey

Author/Editor: La-Bhus Fah Jirasavetakul ; Antonio Spilimbergo Publication Date: December 10, 2018 Electronic Access: Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate.