Economics at your fingertips  

Sources of Economic Policy Uncertainty in the euro area

Andres Azqueta-Gavaldon, Dominik Hirschbühl, Luca Onorante and Lorena Saiz

European Economic Review, 2023, vol. 152, issue C

Abstract: We create economic policy uncertainty (EPU) indicators for the four largest euro area countries by applying two unsupervised machine learning algorithms to news articles. The procedure allows to uncover components of EPU endogenously for the four European languages. The uncertainty indices computed from January 2000 to May 2019 capture episodes of regulatory change, trade tensions and financial stress. In an evaluation exercise, we use a structural vector autoregression model to study the effects of uncertainty on investment and on private consumption. We document considerable effects for the political and domestic regulation uncertainty components on investment, while the other types show heterogeneous effects across countries. For instance, trade uncertainty influences Germany’s investment more than its counterparts. Moreover, we observe strong negative effects of uncertainty on consumption for countries such as Italy (political) and Spain (fiscal, political and domestic regulation).

Keywords: Economic policy uncertainty; Europe; Machine learning; Latent Dirichlet Allocation; Word embeddings; Investment and consumption (search for similar items in EconPapers)
JEL-codes: D80 E20 E66 G18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.euroecorev.2023.104373

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2023-12-06
Handle: RePEc:eee:eecrev:v:152:y:2023:i:c:s0014292123000028