Policy Uncertainty in Japan

IMF Working Papers, May 30, 2017

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Policy Uncertainty in Japan

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Bibliographic details

• Authors: Elif C Arbatli Saxegaard, Steven J Davis, Arata Ito, Naoko Miake, Ikuo Saito
• Published: May 30, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484300671.001

Overview

• Title: Policy Uncertainty in Japan
• Authors: Elif C Arbatli Saxegaard, Steven J Davis, Arata Ito, Naoko Miake, Ikuo Saito
• Date: May 30, 2017
• Publication: IMF Working Papers, Working Paper No. 2017/128
• Pages: 48
• Volume: 2017
• Issue: 128
• DOI: https://doi.org/10.5089/9781484300671.001
• ISBN: 9781484300671
• ISSN: 1018-5941

Methodology

• Constructed new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards.
• Approach builds on Baker, Bloom and Davis (2016).
• Each index measures the frequency of newspaper articles containing specified terms related to: the economy, policy matters, and uncertainty.
• Separate indices developed for: fiscal policy, monetary policy, trade policy, and exchange rate policy.

Key empirical relationships and co-movements

• The overall Japan EPU index co-varies positively with:
  • implied volatilities for Japanese equities,
  • implied volatilities for exchange rates,
  • implied volatilities for interest rates,
  • a survey-based measure of political uncertainty.
• The EPU index shows increases around specific events:
  • contested national elections and major leadership transitions in Japan,
  • the Asian Financial Crisis,
  • the Lehman Brothers failure,
  • U.S. debt downgrade in 2011,
  • Brexit referendum,
  • Japan’s decision to defer a consumption tax hike.
• The policy-specific uncertainty indices (fiscal, monetary, trade, exchange rate) co-vary positively with each other but exhibit distinct dynamics.

Econometric findings

• Vector autoregression (VAR) models are used to analyze macroeconomic effects.
• Upward EPU innovations in VAR models foreshadow deteriorations in macroeconomic performance, as shown by impulse response functions for:
  • investment,
  • employment,
  • output.

Policy implications and recommendations

• Evidence suggests credible policy plans and strong policy frameworks can favorably influence macroeconomic performance.
• Reducing policy uncertainty is a channel through which credible policy and strong frameworks improve macroeconomic outcomes.

Subject areas and keywords

• Subjects: Exchange rate policy, Financial crises, Fiscal policy, Foreign exchange, Global financial crisis of 2008-2009, Public debt, Trade policy
• Keywords: aggregate investment, EPU innovation, Europe, exchange rate, Exchange rate policy, fiscal policy index, Global, Global financial crisis of 2008-2009, Japan, Japan EPU index, policy uncertainty, uncertainty index, WP

IMF Working Paper: "Policy Uncertainty in Japan", May 30, 2017, Working Paper No. 2017/128

Content in this bundle

• Policy Uncertainty in Japan; IMF working paper WP/17/128; May, 2017
  • Policy Uncertainty in Japan; IMF working paper WP/17/128; May, 2017 (Markdown version)
  • Policy Uncertainty in Japan; IMF working paper WP/17/128; May, 2017 (PDF)