Affiliation:
1. Faculty of Economics Tohoku Gakuin University Sendai Japan
Abstract
AbstractThe widely used economic policy uncertainty index relies on newspaper reports' word count and may be influenced by media coverage biases. This empirical study explores the response of the economic policy uncertainty index to permanent and transitory shocks, which are identified using a structural vector autoregressive model. We find an overreaction in the economic policy uncertainty index to a permanent shock, suggesting media reporting's temporary overeagerness. Specifically, we demonstrate that the index responds negatively and transiently to a permanent shock, followed by reversed, prolonged responses. However, the negative and transient effects of a transitory shock on the index are milder.
Funder
Japan Society for the Promotion of Science
Subject
Economics and Econometrics