Reading Economic Policy Uncertainty

global-economic-policy-uncertainty-1997-2016Scott R. Baker, Nicholas Bloom, and Steven J. Davis have developed a new index of economic policy uncertainty(1) (EPU) based on newspaper coverage frequency. They calculate EPU indices for US and eleven other major economies, plus a Global Index.

They first obtain a monthly count of articles that contain a triple of terms about the economy (E), policy (P) and uncertainty (U). They scale the raw counts, standardise each newspaper’s variation, average across papers per country by month, and normalise. To help develop suitable E, P and U term sets, they consulted persons with native-level fluency and economics expertise in the relevant language and country. In particular, the P term set differs across countries for idiosyncratic reasons.

EPU Index for US
EPU Index for US

The EPU index for the US relies on 10 leading newspapers: USA Today, Miami Herald, Chicago Tribune, Washington Post, Los Angeles Times, Boston Globe, San Francisco Chronicle, Dallas Morning News, New York Times, and Wall Street Journal. They search the digital archives of each paper from January 1985 to obtain a monthly count of articles that contain the following triple: ‘uncertainty’ or ‘uncertain’; ‘economic’ or ‘economy’; and one of the following policy terms: ‘congress’, ‘deficit’, ‘Federal Reserve’, ‘legislation’, ‘regulation’ or ‘white house’ (including variants like ‘uncertainties’, ‘regulatory’ or ‘the Fed’). To meet our criteria, an article must contain terms in all three categories pertaining to uncertainty, the economy, and policy.

The 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.

EPU Index for Spain
EPU Index for Spain

In Spain, the authors draw on two newspapers: El Mundo and El Pais.

The authors say that their findings are broadly consistent with theories that highlight negative economic effects of uncertainty shocks. Their results suggest that elevated policy uncertainty in the United States and Europe in recent years may have harmed macroeconomic performance. They find that policy uncertainty is associated with greater stock price volatility and reduced investment and employment in policy-sensitive sectors like defence, healthcare, finance and infrastructure construction.

They also stress that text search methods—using newspaper archives, in particular—are useful to measure a variety of outcomes, can yield useful proxies for economic and policy conditions stretching back several decades, which could be especially valuable in earlier eras and in countries with fewer data sources.

Se non è vero, è ben trovato!


Baker, Scott R., Nicholas Bloom, and Steven J. Davis. ‘Measuring Economic Policy Uncertainty’. NBER Working Paper. National Bureau of Economic Research, Inc, 2015.

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