The aim of this study is to analyze the relationship between uncertainty and economic activity. For this purpose, we use a confidential firm level panel data set (Business Tendency Survey) from Turkey to form three uncertainty measures, namely total, idiosyncratic and aggregate uncertainty. In particular, we construct expectation errors of firms by comparing their survey responses about expectations and realizations on their production volume. Our results reveal countercyclical relationships between our uncertainty measures and economic activity. We further show that a one standard deviation increase in aggregate uncertainty is followed by a 0.5 percent decline in year-on-year change of industrial production on impact. The prolonged effect reaches more than 4.7 percent in a year for any of these three measures.
This study investigates the price-setting behavior of Turkish industries based on the results of a survey that was conducted by the Central Bank of the Republic of Turkey. The results show that, under normal conditions, the majority of the firms follow a timedependent pricing rule but when significant events occur a substantial fraction of them alter their behavior to state-dependent reviewing. The median Turkish firm reviews its prices every month, but changes its prices four times a year. Price reviews and changes are affected by: the market share, price discrimination, customer type, firm size, and the existence of regulated prices.
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