Policy Uncertainty In Japan / Elif C. Arbatli, Steven J. Davis, Arata Ito, Naoko Miake.

Format:

Book

Author/Creator:

Arbatli, Elif C.

Contributor:

Davis, Steven J.

Ito, Arata.

Miake, Naoko.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23411.

NBER working paper series no. w23411

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

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.

Notes:

Print version record

May 2017.