From text to trouble: understanding the limits of text-derived trade policy uncertainty measures

Maximilian Schröder

Economic Bulletin Boxes, 2026, vol. 8

Abstract: Uncertainty surrounding trade policy has become a key factor shaping the investment and production decisions of firms. While text-based measures such as the trade policy uncertainty (TPU) index are widely used to track these developments, their readings can be misinterpreted when treated as direct measures of uncertainty shocks. Keyword-driven co-mentions might, for example, inflate the index in periods of heightened trade tensions. This box introduces an alternative text-based measure, constructed by regressing the raw TPU index on a set of covariates, that can be more reliably incorporated into standard macroeconomic models by removing some of the contamination and offers a clearer view of how trade policy uncertainty affects economic activity. JEL Classification: F13, E66, E32

Keywords: business cycle fluctuations; natural language processing; scenario analysis; Trade policy uncertainty (search for similar items in EconPapers)
Date: 2026-01
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