Policy Uncertainty in Japan

46 Pages Posted: 24 May 2017 Last revised: 21 Jun 2023

See all articles by Elif C. Arbatli

Elif C. Arbatli

International Monetary Fund (IMF)

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Arata Ito

Research Institute of Economy, Trade and Industry (RIETI)

Naoko Miake

International Monetary Fund (IMF)

Ikuo Saito

International Monetary Fund (IMF)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2017

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.

Suggested Citation

Arbatli, Elif C. and Davis, Steven J. and Ito, Arata and Miake, Naoko and Saito, Ikuo, Policy Uncertainty in Japan (May 2017). NBER Working Paper No. w23411, Available at SSRN: https://ssrn.com/abstract=2971788

Elif C. Arbatli (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Steven J. Davis

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoover Institution

434 Galvez Mall
Stanford University
Stanford, CA 94305-6010
United States
773 251 1795 (Phone)

Arata Ito

Research Institute of Economy, Trade and Industry (RIETI) ( email )

1-3-1 Kasumigaseki
Chiyoda-ku
Tokyo 100-8901
Japan

Naoko Miake

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ikuo Saito

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
40
Abstract Views
642
PlumX Metrics