NEW ECONOMIC POLICY UNCERTAINTY Index for KOREA

New Economic Policy Uncertainty Index for Korea

New Economic Policy Uncertainty (EPU) Index

Dooyeon Cho and Husang Kim construct a new economic policy uncertainty index for Korea, based on 13 major Korean newspapers. The list of newspapers includes Donga-ilbo, Hankyoreh, Kyunghyang Shinmun, The Korea Times, Maeil Economic Daily, Korea Economic Daily, Chosun-ilbo, JoongAng Daily, Kukmin Daily, Munhwa-ilbo, Seoul Shinmun Daily, Sekye-ilbo, and Seoul Economic Daily. The article data is sourced from the "Bigkinds" digital archive managed by the Korea Press Foundation. Data on news articles are collected from January 1990. Our construction methodology closely follows the procedure outlined by Baker et al. (2016). First, we collect articles that jointly contain at least one term in each of the (E) Economy, (U) Uncertainty, and (P) Policy categories as in Table A1 below. Second, after aggregating the number of relevant articles by a newspaper and month, the counts are scaled by the total number of articles by the same newspaper to obtain a relative frequency count. Third, each newspaper’s relative EPU counts are standardized to the unit standard deviation from the whole sample period. Fourth, we average the standardized series across newspapers by month to obtain our overall monthly Korean EPU index. Finally, the EPU index is normalized to have an average value of 100 over the initial sample period from January 1990 to December 2020.

Despite the procedural similarity, the advantages of our new index over the original one constructed by Baker et al (2016) are threefold. First, our new index is based on the wider press coverage and the richer set of keywords that correspond much more closely to actual language use. In addition to the 6 newspapers used in the original construction (the first six in the abovementioned list), we add 7 more newspapers with a nationwide readership. The terms selected also better reflect the actual language use (e.g., “concern”, “structural reform”) and the economic environment of Korea as a small open economy ("Fed"). Second, our index captures the graveness of major economic events which is illustrated in Figure above. The peaks of our index are observed around the Asian financial crisis of 1997/98 and the Global financial crisis of 2008/09. Last, the empirical exercises using local projections give results in favor of our index relative to the original index. The macroeconomic aggregates such as real consumption, real investment, and real output decline significantly in response to the new EPU shock. In contrast, such deteriorating effects either tend to disappear or weaken significantly when the original index is employed.

For more information on the new EPU index and the empirical results, please refer to Cho and Kim (2023) "Macroeconomic Effects of Uncertainty Shocks: Evidence from Korea", Journal of Asian Economics 84, 101571. A lot of effort has been put to construct these data and we would appreciate that you acknowledge using our data in your research and cite our paper.

Contact

If you have any queries regarding our data, please contact Dooyeon Cho (Department of Economics, Sungkyunkwan University or SKKU) at the following email address.

Email: dooyeoncho at g.skku.edu

Web: https://dooyeoncho.github.io/