(Bank of Japan Review) Economic Policy Uncertainty in Earnings Calls
Overview
This article constructs a corporate EPU index from the earnings call transcripts of Japanese companies and analyzes its characteristics and effects on the macroeconomy. Corporate EPU reflects rising uncertainty surrounding regulation and tax and fiscal policy more strongly than existing newspaper-based EPU and stock volatility indexes. Time-series model analysis shows that, even after accounting for other factors, higher corporate EPU is associated with declines in capital investment and employment. The article argues that earnings call transcripts contain useful information for explaining macroeconomic fluctuations and that a broad range of media should be examined from multiple perspectives when assessing economic and price conditions.
Key points
- Corporate EPU reflects uncertainty surrounding regulation and tax and fiscal policy more strongly than existing indicators.
- Rising corporate EPU is associated with declines in capital investment and employment.
- Earnings call transcripts contain useful information for macroeconomic analysis.
Overview
Macroeconomic analysis uses the Economic Policy Uncertainty (EPU) index as a measure for quantifying uncertainty. This article constructs a corporate EPU index, based on the earnings call transcripts of Japanese companies, and analyzes its characteristics and effects on the macroeconomy.
Impact
Time-series model analysis showed that, even after accounting for other factors, rising corporate EPU is associated with declines in capital investment and employment.
Details
Compared with existing EPU indexes based on newspaper articles and stock volatility indexes, corporate EPU more strongly reflects rising uncertainty surrounding regulation and tax and fiscal policy. This characteristic suggests that companies are sensitive to changes in these business conditions.
The analysis shows that earnings call transcripts contain useful information for explaining macroeconomic fluctuations. It also suggests the importance of examining a broad range of media from multiple perspectives when assessing economic and price conditions.