Uncertainty and the Covid‐19 Pandemic: A Case Study for Disaggregated Industrial Production

Ali Yavuz Polat, Erhan Mugaloglu, Hasan Tekin and Edanur Kılıç

Scottish Journal of Political Economy, 2025, vol. 72, issue 3

Abstract: Employing principal component analysis (PCA), we build novel economic uncertainty indices for Turkey. Economic/business uncertainty and sectoral uncertainty indices sensitively detect important economic and political events in Turkey as well as Covid‐19‐induced uncertainty spiking to an all‐time high during the outbreak, providing handy tools for policymakers. Then, we analyze the impact of the pandemic on the Turkish economy through general and sectoral industrial production indices employing structural VAR models. Moreover, we examine the forecast accuracy of the uncertainty indices and show that our uncertainty measures are not biased. Out‐of‐sample forecast power results suggest that the services‐related uncertainty index significantly better proxies Covid‐19 stimulated structural shocks. This is due to the immediate significant impact of the Covid‐19 pandemic on the service sector since lockdown measures initially affect this sector.

Date: 2025
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