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Economic Policy Uncertainty in Turkey

La-Bhus Jirasavetakul and Antonio Spilimbergo

No 18/272, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Economic policy; Economic conditions; Employment; Investment; Emerging markets; Policy uncertainty, economic uncertainty, firm-level, sector-level, investment decisions, employment growth, leverage strategies, diff-in-diff estimation, General, General, General Outlook and Conditions, General (search for similar items in EconPapers)
Pages: 36
Date: 2018-12-10
New Economics Papers: this item is included in nep-ara, nep-cwa and nep-mac
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