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Policy Uncertainty In Japan

Elif Arbatli (), Steven Davis (), Arata Ito and Naoko Miake

No 23411, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards, building on Baker, Bloom and Davis (2016). Each index reflects the frequency of newspaper articles that contain certain terms pertaining to the economy, policy matters, and uncertainty. Our overall EPU index co-varies positively with implied volatilities for Japanese equities, exchange rates, and interest rates and with a survey-based measure of political uncertainty. It rises around contested national elections and major leadership transitions in Japan, during the Asian financial crisis and in reaction to the Lehman Brothers failure, U.S. debt downgrade in 2011, Brexit referendum, the deferral of a consumption tax hike, and the onset of the COVID-19 pandemic. Our uncertainty indices for fiscal, monetary, trade, and exchange rate policy co-vary positively but also display distinct dynamics. For example, our trade policy uncertainty (TPU) index rocketed upwards when the U.S. withdrew from the Trans-Pacific Partnership. VAR models imply that upward EPU innovations foreshadow deteriorations in Japan’s macroeconomic performance, as reflected by impulse response functions for investment, employment, and output. Our study adds to evidence that credible policy plans and strong policy frameworks can favorably influence macroeconomic performance by reducing policy uncertainty.

JEL-codes: D80 E2 E52 E62 F13 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-mac
Note: EFG ME PE POL
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Published as Elif Arbatli & Steven Davis & Arata Ito & Naoko Miake & Ikuo Saito, 2017. "Policy Uncertainty in Japan," IMF Working Papers, vol 17(128).
Published as Arbatli Saxegaard, Elif C. & Davis, Steven J. & Ito, Arata & Miake, Naoko, 2022. "Policy uncertainty in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 64(C).

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