Economic Policy Uncertainty in Turkey

La-Bhus Jirasavetakul and Antonio Spilimbergo

No 2018/272, 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: WP; EPU index; investment model; micro data; depreciation rate; gross investment; Policy uncertainty; economic uncertainty; Turkey; firm-level; sector-level; investment decisions; employment growth; leverage strategies; diff-in-diff estimation; investment irreversibility; Employment; Credit default swap; GDP forecasting; Global (search for similar items in EconPapers)
Pages: 36
Date: 2018-12-10
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Citations: View citations in EconPapers (4)

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Working Paper: Economic Policy Uncertainty in Turkey (2018)
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