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Using Natural Language Processing to Measure COVID-19-Induced Economic Policy Uncertainty for Canada and the US*

Shafuillah Qureshi (), Ba Chu, Fanny S. Demers () and Michel Demers ()
Additional contact information
Shafuillah Qureshi: Department of Economics, Carleton University, https://carleton.ca/economics/people/qureshi-shafiullah/
Fanny S. Demers: Department of Economics, Carleton University, https://carleton.ca/economics/people/demers-fanny-s/
Michel Demers: Department of Economics, Carleton University, https://carleton.ca/economics/people/demers-michel/

No 22-01, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: We develop an economic policy uncertainty (EPU) index for Canada and the US using natural language processing (NLP) methods. Our EPU-NLP index is based on an application of several algorithms, including a rapid automatic keyword extraction algorithm (RAKE), a combination of the RoBERTa and the Sentence-BERT algorithms, a PyLucene search engine, and the GrapeNLP local grammar engine. For comparison purposes, we also develop an index based on a strictly Boolean index. We find that the EPU-NLP index captures COVID-19 related uncertainty better than the Boolean index. Using a structural VAR approach, we found that an economic policy uncertainty shock with EPU-NLP results in larger declines in real GDP, employment, industrial production and the TSX index than with EPU-Boolean for Canada. Similar results were also found for the US: an EPU-NLP shock led to larger declines in industrial production, employment, real personal consumption expenditure, and S&P500 than EPU-Boolean. The SVAR model showed an abrupt contraction in economic variables both for Canada and the US in line with the COVID-19 impact. Moreover, an uncertainty shock (with the EPU-NLP) caused a much larger contraction in economic variables for the period including the COVID-19 pandemic, than for the period before COVID-19.

Pages: 23 pages
Date: 2022-01-18
New Economics Papers: this item is included in nep-big and nep-cmp
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Published: Carleton Economics Papers

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