State-level economic policy uncertainty

Scott Baker, Steven Davis and Jeffrey A. Levy

Journal of Monetary Economics, 2022, vol. 132, issue C, 81-99

Abstract: We quantify and study state-level economic policy uncertainty. Tapping digital archives for nearly 3500 local newspapers, we construct three monthly indexes for each state: one that captures state and local sources of policy uncertainty (EPU−S), one that captures national and international sources (EPU−N), and a composite index that captures both. EPU−S rises around gubernatorial elections and own-state episodes like the California electricity crisis of 2000–01 and the Kansas tax experiment of 2012. EPU−N rises around presidential elections and in response to 9–11, Gulf Wars I and II, the 2011 debt-ceiling crisis, the 2012 fiscal cliff episode, and federal government shutdowns. Close elections elevate policy uncertainty much more than the average election. VAR models fit to pre-COVID data imply that upward shocks to own-state EPU foreshadow weaker economic performance in the state, as do upward EPU shocks in contiguous states. The COVID-19 pandemic drove huge increases in policy uncertainty and unemployment, more so in states with stricter government-mandated lockdowns.

Keywords: Policy uncertainty; Elections and uncertainty; State-level economic performance; Unemployment; Housing starts; Home prices; Spatial spillovers; COVID-19 pandemic (search for similar items in EconPapers)
JEL-codes: D80 E66 G18 H70 R31 R50 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Related works:
Working Paper: State-Level Economic Policy Uncertainty (2022)
Working Paper: State-Level Economic Policy Uncertainty (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:132:y:2022:i:c:p:81-99

DOI: 10.1016/j.jmoneco.2022.08.004

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