Working Paper: CEPR ID: DP13352
Authors: Labhus Jirasavetakul; Antonio Spilimbergo
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. 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: policy uncertainty; economic uncertainty; turkey; firm-level; sector-level; investment decisions; employment; growth; leverage strategies; diff-in-diff estimation
JEL Codes: D80; E22; E66; L20; M51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic Policy Uncertainty (EPU) (D89) | Real Annual Investment Rate (E22) |
| Economic Policy Uncertainty (EPU) (D89) | Real Annual Investment Rate (High Irreversibility Sectors) (G31) |
| Economic Policy Uncertainty (EPU) (D89) | Employment Growth (O49) |
| Economic Policy Uncertainty (EPU) (D89) | Leverage Strategies (L14) |
| Economic Policy Uncertainty (EPU) (D89) | Net Borrowing as Share of Total Liabilities (F65) |