Measuring economic policy uncertainty
Scott Baker,
Nicholas Bloom and
Steven Davis
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
Abstract:
We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence – including human readings of 12,000 newspaper articles – indicate that our index proxies for movements in policy-related economic uncertainty. Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction. At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies. Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s.
Keywords: economic uncertainty; policy uncertainty; business cycles; fluctuations (search for similar items in EconPapers)
JEL-codes: D80 E22 G18 L50 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2015-10
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (258)
Downloads: (external link)
http://eprints.lse.ac.uk/64986/ Open access version. (application/pdf)
Related works:
Journal Article: Measuring Economic Policy Uncertainty (2016) 
Working Paper: Measuring Economic Policy Uncertainty (2015) 
Working Paper: Measuring Economic Policy Uncertainty (2015) 
Working Paper: Measuring Economic Policy Uncertainty (2015) 
Working Paper: Measuring Economic Policy Uncertainty (2015) 
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: https://EconPapers.repec.org/RePEc:ehl:lserod:64986
Access Statistics for this paper
More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().