Asymmetric dynamics of insurance premium: The impact of monetary policy uncertainty on insurance premiums in Japan

Abstract

By employing a non-linear autoregressive distributed lag (NARDL) model, this study investigates the effect of monetary policy uncertainty on insurance premium in Japan. Asides the confirmation of a long-run relationship between monetary policy uncertainty, insurance premium and real income, we also find that a positive relationship exists between monetary policy uncertainty and insurance premium. This shows that when economic policy uncertainty increases (decreases) then insurance premiums increases (decreases) in response. Moreover, we discovered that monetary policy uncertainty impacts insurance premium in an asymmetric way, such that negative changes have a bigger effect than positive changes on total insurance premium in Japan. We also found that real income has a significant and positive effect on insurance premium, and that the long run elasticity of insurance premium on real income is smaller than unit. This implies that insurance is a necessity and not a luxury in Japan. © © 2019 Inderscience Enterprises Ltd.