Measuring Economic Policy Uncertainty*
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 U.S. 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 is associated with greater stock price volatility and reduced investment and employment in policy-sensitive sectors like defense, health care, finance, and infrastructure construction. At the macro level, innovations in policy uncertainty foreshadow declines in investment, output, and employment in the United States and, in a panel vector autoregressive setting, for 12 major economies. Extending our U.S. index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upward since the 1960s.
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NR_G's predictability is stronger during periods of high economic policy uncertainty.
“This hypothesis finds support in our regression analysis of future returns against interaction terms between 𝑁𝑅 𝐺 and dummy variables based on economic policy uncertainty (EPU) proposed by Baker, Bloom, and Davis (2016).”
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Dixit, R. K., & Pindyck, R. S. (1994) · doi:10.1515/9781400830176 · Cited by 9,029 · see citing works
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- Authors
- Baker, S. R., Bloom, N., & Davis, S. J.
- Affiliations
- John D. and Catherine T. MacArthur Foundation (US)
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 2016-07-11
- Volume
- 131
- Issue
- 4
- Pages
- 1593-1636
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W3126081245
- Cited by
- 12,458
- References
- 1
- Citations by year
- 2026: 2056 · 2025: 2009 · 2024: 1724 · 2023: 1639 · 2022: 1296 · 2021: 1184 · 2020: 901 · 2019: 662 · 2018: 470 · 2017: 306 · 2016: 106 · 2015: 36 · 2014: 29 · 2013: 18 · 2012: 11
- FWCI
- 903.05
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Quarterly Journal of Economics (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- HighWire Press Open Archive (submittedVersion)
- Funders
- Economic and Social Research Council (ES/M010341/1)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Market Dynamics and Volatility
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › COVID-19 Pandemic Impacts
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Keywords
- economic policy uncertainty, media coverage, uncertainty index, stock price volatility, investment, employment, fiscal policy, presidential elections, 1930s Great Depression, business cycle forecasting, panel vector autoregression
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Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
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