Economic policy uncertainty and economic activity in Turkey

ABSTRACT

We construct economic policy uncertainty (EPU) index for Turkey based on newspaper coverage frequency. The EPU index reflects the frequency counts of articles in major Turkish newspapers that contain specific terms related to economy, policy and uncertainty. The EPU index rises around national elections (2002, 2007 and 2015), domestic uncertainty periods (2008 and 2013), domestic and global financial crisis periods (2001 and 2009) and the Euro area debt crisis in 2011. The investigation of the impact of EPU on economic activity reveals that policy uncertainty has adverse impacts on economic growth, consumption and investment in Turkey. Remarkable is that high uncertainty leads to a greater investment decline than output and consumption.

KEYWORDS:

• Economic policy
• uncertainty
• vector autoregression
• business cycles

JEL CLASSIFICATION:

• C22
• D81
• E32

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Interpress is a media monitoring company in Turkey.

² The real exchange rate is the CPI-based real exchange rate.

³ The real interest rate is calculated by using the one-year government debt securities interest rate and the expectation of annual CPI inflation at the end of the next 12 months.

⁴ As a robustness test, we changed the ordering of the variables in the VAR models, but no significant change is observed in impulse responses.

⁵ Based on the Schwarz information criteria.