 Uncovering Economic Policy Uncertainty During ConflictSophie Brochet, Hannes Mueller and Christopher Rauh Janeway Institute Working Papers from Faculty of Economics, University of Cambridge Abstract: The correct measurement of economic policy uncertainty (EPU) plays a critical role in many policy settings - in particular where economic policy decisions need to be taken in response to large shocks. One such large shock is armed conflict. But, counterintuitively, the standard text-based EPU index systematically declines during armed conflict periods. Using a global news corpus covering 192 countries and over 5 million articles, we show that this decline is driven not by reduced uncertainty, but by a crowding out of reporting on economics and policy. We show that a combination of topic modeling and two-way fixed effects can be used to adjust the measurement of EPU, providing a new view on political risk during armed conflict. After adjustment, the EPU aligns more closely with firm perceptions, political risk insurance and investment during armed conflict. Keywords: Economic Policy Uncertainty (EPU); Armed Conflict; Media Crowding-Out; Topic Modeling; Latent Dirichlet Allocation (LDA); Measurement Bias; Text-Based Indices; Macroeconomic Uncertainty (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cam:camjip:2520 Access Statistics for this paper More papers in Janeway Institute Working Papers from Faculty of Economics, University of Cambridge |
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