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Measuring Economic Policy Uncertainty
Steven J. Davis, Chicago & NBER
Research with Scott Baker (joining Kellogg) And Nick Bloom (Stanford & NBER)
UC-San Diego April 2014
Uncertainty barometer
Economic Uncertainty: Multi-faceted and hard to measure
Uncertainty barometer
Economic Uncertainty: Multi-faceted and hard to measure But important in many theories & mechanisms: -- Option value of waiting -- Precautionary savings -- Cost of finance investment -- Ambiguity aversion -- Managerial risk aversion
Uncertainty barometer
Todays Focus: Newspaper-based measures of Economic Policy Uncertainty
Uncertainty barometer
Todays Focus: Newspaper-based measures of Economic Policy Uncertainty Consider other EPU measures too, partly as a cross-check on newspaper- based measures
Research Objectives 1. Construct new measures of Economic Policy
Uncertainty (EPU). Thus far: Monthly indexes for USA, Canada, UK, Germany,
France, Italy, Spain, China, India and Japan. Daily measure for USA
2. Develop methods to evaluate and refine the newspaper-based indexes.
3. Assess the view that policy-related economic uncertainty is at historically high levels in recent years in the U.S. and in Europe.
Which events and policy matters account for large changes in policy-related economic uncertainty?
6
Research Objectives 4. Assess the effects of policy uncertainty on firm-
level and macroeconomic performance As an impulse or driving force In amplifying and propagating other shocks (e.g.,
the financial crisis) 5. Related work: Understand economic, political
and social forces behind policy uncertainty Why Has U.S. Policy Uncertainty Risen Since
1960? BBD, Brandice Canes-Wrone and Jonathan Rodden, AER Papers & Proceedings (May 2014)
6. Underway: Surveys of subjective business expectations & perceived uncertainty Bloom & Davis w/ Atlanta Fed researchers & others
7
What Do We Want our EPU Index to Capture?
All of the following: Uncertainty about who will make economic policy
decisions e.g., who will win the next elections? Uncertainty about what economic policy actions
decision makers will undertake, and when. Uncertainty about the economic effects of policy
actions past, present and future actions Economic uncertainty induced by policy inaction Economic uncertainty related to national security
concerns and other policy matters that are not mainly economic in character
8
Constructing Our Newspaper-Based EPU Index for the U.S.
Search digital archives of 10 major newspapers for articles with terms related to EPU
For each newspaper: Get monthly EPU article counts Scale by count of all articles in same month Normalize scaled count so that SD=1 for 1985-2010 Newspaper-level EPU Index
Sum across newspaper-level indexes by month to get the U.S. EPU index
9
Constructing Our Newspaper-Based EPU Index for the U.S.
Text String Search Criteria: EU: {economic OR economy} AND {uncertain OR uncertainty} EPU: AND {regulation OR deficit OR federal reserve OR congress OR legislation OR white house}
10
Constructing Our Newspaper-Based EPU Index for the U.S.
Text String Search Criteria: EU: {economic OR economy} AND {uncertain OR uncertainty} EPU: AND {regulation OR deficit OR federal reserve OR congress OR legislation OR white house}
11
Later: How do we select the policy terms for our EPU search filter?
Constructing Our Newspaper-Based EPU Index for the U.S.
Newspapers: Boston Globe Chicago Tribune Dallas Morning News Los Angeles Times Miami Herald
New York Times SF Chronicle USA Today Wall Street Journal Washington Post
12
Note: We use Access World News Newsbank Service when constructing a daily EPU Index, because the daily index requires a higher density of news sources.
US Newspaper-Based Economic Policy Uncertainty (EPU) Index
Source: Measuring Economic Policy Uncertainty by Scott R. Baker, Nicholas Bloom and Steven J. Davis, all data at www.policyuncertainty.com. Data normalized to 100 prior to 2010.
50
100
150
200
250
Gulf War I
9/11
Clinton Election
Gulf War II
Bush Election
Stimulus Debate
Lehman and TARP
Euro Crisis and 2010 Midterms
Russian Crisis/LTCM
Debt Ceiling; Euro Debt
Black Monday
Fisc
al C
liff
Shu
tdow
n &
DC
2
Obama Election
January 1985 to February 2014
http://www.policyuncertainty.com/
European Newspaper-Based EPU Index 50
10
0 15
0 20
0 Po
licy
Unc
erta
inty
Inde
x
9/11
Asian Crisis
Papandreou calls for
referendum, then resigns
Italy Rating
Cut
German Elections
Lehman Bros.
Greek Bailout Request, Rating
Cuts
Northern Rock & Ensuing Financial Turmoil
Treaty of Accession/ Gulf War II
Nice Treaty Referendum
Source: www.policyuncertainty.com. Based on 10 paper (El Pais, El Mundo, Corriere della Sera, La Repubblica, Le Monde, Le Figaro, the Financial Times, Times, Handelsblatt, FAZ.)
Russian Crisis/LTCM
French and Dutch Voters Reject European Constitution
Ongoing Eurozone Stresses
January 1997 to February 2014
http://www.policyuncertainty.com/
Two Measurement Concerns
Suitability: Whether an accurate count for news articles about a particular type of uncertainty provides a good indicator for that type of uncertainty.
Accuracy: Whether specific text-string search criteria accurately identify the set of articles that discuss a certain type of uncertainty, e.g., policy-related economic uncertainty.
15
Assessing Suitability Concern Idea: Apply news-based approach to a concept of uncertainty for which we have external, market-based evidence. Implementation: Compare VIX measure of uncertainty about future equity returns to a news-based index of equity market uncertainty, with search terms as follows:
{economic OR economy} AND {uncertain OR uncertainty} AND {stock price OR equity price OR stock market}
16
0 20
0 40
0 60
0 Figure 7: Newspaper-based index of equity market uncertainty compared
to market-based VIX, January 1990 to December 2012
Notes: The news-based index of equity market uncertainty is based on the count of articles that reference economy or economic, and uncertain or uncertainty and one of stock price, equity price, or stock market in 10 major U.S. newspapers, scaled by the number of articles in each month and paper. The news-based index and the VIX are normalized to a mean of 100 over sthe period.
Correlation=0.733 Monthly
News-Based Index of
Equity Market Uncertainty
Monthly Average of Daily VIX
Values
Political Slant in Newspaper Coverage of
Economic Policy Uncertainty
18
Figure 9: Political slant plays little role in time-series behavior of news-based EPU index
Source: Papers sorted into 5 most Republican and 5 most Democratic groups using the media slant measure from Gentzkow and Shapiro (2010).
0 10
0 20
0 30
0 40
0
1985 1990 1995 2000 2005 2010
Reagan, Bush I Bush II Clinton
Obama
5 most Republican papers
5 most Democrat papers
20
Assessing Accuracy Concern Working under our direction, RA teams read several thousand newspaper articles, following a 50-page audit guide to code articles: EU=0/1, EPU=0/1, and much more
Figure 8: Human Readings and Computer-Automated Method Yield Similar Newspaper-Based EPU Indexes, 1985Q1 to 2012Q2
Note: Based on random samples of 45 articles per quarter (fewer prior to 1993). For these articles, we calculate quarterly EPU rates based on human readings (red line) and based on computer-automated methods (blue line).
Using the Audit Sample and our preferred policy term set, correlation is 0.84 between human and computer methods.
Computer
Human
Other Audit Results Correlation of news-based EPU error rate and
real GDP growth rate = -0.12 (raw quarterly data) Correlation of EPU error rate and true EPU:
= -0.11 in the raw quarterly data = -0.06 in detrended quarterly data
Among EPU=1 articles: 5% are mainly about low or declining uncertainty 73% discuss uncertainty about what or when 32% discuss uncertainty about effects 15% discuss uncertainty about who
22
Other Audit Results
23
Uncertainty about Who
Who Uncertainty Times EPU Value
All Years 15% of EPU Articles
16
Presidential Election Years
37% of EPU Articles
42
What/When Uncertainty
Times EPU Value
Effects Uncertainty
Times EPU Value All Years 77 34
Presidential Election Years
70 28
Selecting a Preferred Term Set Consider 16,000 permutations of 14 policy-
relevant terms: regulation, budget, spending, policy, deficit, tax, federal reserve, white house, house of representatives, government, congress, senate, president, and legislation.
+ 14,000 combinations that replace terms like policy and government with multi-word terms like government policy
Interpreting the human coding as truth, select the term set that minimizes the sum of false positive and false negative error rates
24
Error rates for 28,000 permutations of 14 policy terms in a human audit sample of 3,500 randomly selected articles
Permutations of 14 policy terms: regulation, budget, deficit, tax, federal reserve, government, congress, senate, president, legislation, government spending, federal spending, etc.
False positives and false negatives expressed as a fraction of true EPU as judged by human readers.
Our preferred policy term set: {congress, deficit, federal reserve, legislation, regulation, white house}
More Sophisticated Methods? Our EPU measure is simple and transparent:
Based on presence of certain terms, classify each newspaper article as EPU = 1 or 0.
Automate and search over vast digital archives. Count the 1s, scale, and aggregate over papers.
Can we build a better EPU index using more sophisticated classification methods in machine-learning literature? We are investigating.
Practical constraints: Archives dont reside on our disk Search platforms have limited capabilities 26
Three Other Types of Indicators of Economic Policy Uncertainty for the United States
Tax Code Expirations Index Discounted revenue impacts of federal tax code
provisions set to expire over next 10 years Based on Congressional Budget Office projections
Frequency counts for uncertainty and policy-related uncertainty in the Federal Reserves Beige Books: Beige Book issued every six weeks in advance of each regularly
scheduled FOMC meeting since 1983 Survey-based measures of disagreement among professional
forecasters about future inflation and future government purchases of goods and services. See paper or back of slide deck.
27
Figure 3: Federal Tax Code Expirations Index, 1991-2013
Notes: Based on Congressional Budget Office data on projected revenue effects of federal tax code provisions set to expire in the current calendar year and next ten years. For a given year, the index value is calculated as the discounted sum of projected revenue effects associated with expiring tax code provisions, using a discount factor of 0.5^T applied to future revenue effects for T=0,1,10 years. Index normalized to a mean of 100 before 2010.
Fede
ral T
ax C
ode
Expi
ratio
n In
dex
0 50
0 10
00
1500
Figure 3: Federal Tax Code Expirations Index, 1991-2013
Notes: Based on Congressional Budget Office data on projected revenue effects of federal tax code provisions set to expire in the current calendar year and next ten years. For a given year, the index value is calculated as the discounted sum of projected revenue effects associated with expiring tax code provisions, using a discount factor of 0.5^T applied to future revenue effects for T=0,1,10 years. Index normalized to a mean of 100 before 2010.
Fede
ral T
ax C
ode
Expi
ratio
n In
dex
0 50
0 10
00
1500
Undiscounted projected 10-year revenue impact of scheduled tax code expirations: Before 2003 < $250 billion 2009-2012: $3-5 trillion
2013: Huge drop due to Fiscal Cliff resolution
30
Counts of Uncertainty and Policy-Related Uncertainty per Beige Book, 1983Q3-2013Q4
Source: Baker, Bloom and Davis review of all FOMC Beige Books, available at www.federalreserve.gov/monetarypolicy/fomc_historical.htm.
0
10
20
30
40
1983
Q3
1984
Q3
1985
Q3
1986
Q3
1987
Q3
1988
Q3
1989
Q3
1990
Q3
1991
Q3
1992
Q3
1993
Q3
1994
Q3
1995
Q3
1996
Q3
1997
Q3
1998
Q3
1999
Q3
2000
Q3
2001
Q3
2002
Q3
2003
Q3
2004
Q3
2005
Q3
2006
Q3
2007
Q3
2008
Q3
2009
Q3
2010
Q3
2011
Q3
2012
Q3
2013
Q3
Average Uncertainty CountAverage Policy-Related Count
Tax Cut Expiration Battle
Debt- Ceiling Fight
Iraq Invasion
Fiscal Cliff & Sequester
Shu
tdow
n &
DC
2
http://www.federalreserve.gov/monetarypolicy/fomc_historical.htm
Evidence about Sources of Policy Uncertainty
31
Note: Analysis uses Newsbank coverage of around 1000 US national and local newspapers See Table 1 in the Baker, Bloom and Davis (2013) for a more detailed analysis.
What drives recent rise in U.S. economic policy uncertainty?
PresenterPresentation NotesSmall newspapers like the Modesto Bee or the Oregon Emerald, Seattle Times
Note: Analysis uses Newsbank coverage of around 1000 US national and local newspapers See Table 1 in the Baker, Bloom and Davis (2013) for a more detailed analysis.
What drives recent rise in U.S. economic policy uncertainty? Newspaper articles point mainly to concerns about fiscal and healthcare policies
PresenterPresentation NotesSmall newspapers like the Modesto Bee or the Oregon Emerald, Seattle Times
Beige Books Tell a Similar Story Counts By Category and Selected Time Period, 1983Q3 to 2013Q1
1990 Q4 - 1991 Q1
Gulf War I
1993 Q2 - 1993 Q3
Clinton Tax Reforms
2001 Q4 - 2002 Q2
9/11 Attacks
2002 Q4 - 2003 Q2
Gulf War II
2004 Q2 - 2004 Q4
Bush/Kerry Election
2008 Q3 - 2009 Q4
Lehman's and recession
2010 Q1 - 2013 Q1
Debt-ceiling crisis
1983 Q3 2013 Q1 Overall Average
Overall Economic Uncertainty 11 8.8 7.7 13.5 5.2 10.2 15.8 5.5 Economic Policy Uncertainty 5.5 6.3 1.2 4.8 2.8 0.8 6.8 1.7 All Fiscal Matters 1 5.5 1.5 0 0 0.4 3.3 1.0
Taxes Only 0 3.3 0.2 0 0 0.3 1.4 0.4 Spending Only 0.5 1 1 0 0 0.2 1.2 0.3
Monetary Policy 0 0 0 0 0 0 0 0 Health Care 0 2 0 0 0 0.2 0.5 0.1 National Security and War 5.3 0.3 0 2 0 0 0.1 0.2 Financial Regulation 0 0 0 0 0 0.2 1.2 0.2 Sovereign debt, currency crisis 0 0 0 0 0 0 0.8 0.1 U.S. Elections and Leadership Changes 0 0 0 0.2 2.2 0 0.9 0.2 Other Specified Policy Matters 0 0.5 0.7 0 0.2 0 0.5 0.2 Politics, Unspecified 0.5 1 0 3 0.7 0 1.6 0.3 Sum of Policy & Politics Categories 6.8 9.3 2.2 5.2 3.0 0.8 10.0 2.5
But also Highlight Concerns Related to Financial Regulation, Sovereign Debt, and Politics
1990 Q4 - 1991 Q1
Gulf War I
1993 Q2 - 1993 Q3
Clinton Tax Reforms
2001 Q4 - 2002 Q2
9/11 Attacks
2002 Q4 - 2003 Q2
Gulf War II
2004 Q2 - 2004 Q4
Bush/Kerry Election
2008 Q3 - 2009 Q4
Lehman's and recession
2010 Q1 - 2013 Q1
Debt-ceiling crisis
1983 Q3 2013 Q1 Overall Average
Overall Economic Uncertainty 11 8.8 7.7 13.5 5.2 10.2 15.8 5.5 Economic Policy Uncertainty 5.5 6.3 1.2 4.8 2.8 0.8 6.8 1.7 All Fiscal Matters 1 5.5 1.5 0 0 0.4 3.3 1.0
Taxes Only 0 3.3 0.2 0 0 0.3 1.4 0.4 Spending Only 0.5 1 1 0 0 0.2 1.2 0.3
Monetary Policy 0 0 0 0 0 0 0 0 Health Care 0 2 0 0 0 0.2 0.5 0.1 National Security and War 5.3 0.3 0 2 0 0 0.1 0.2 Financial Regulation 0 0 0 0 0 0.2 1.2 0.2 Sovereign debt, currency crisis 0 0 0 0 0 0 0.8 0.1 U.S. Elections and Leadership Changes 0 0 0 0.2 2.2 0 0.9 0.2 Other Specified Policy Matters 0 0.5 0.7 0 0.2 0 0.5 0.2 Politics, Unspecified 0.5 1 0 3 0.7 0 1.6 0.3 Sum of Policy & Politics Categories 6.8 9.3 2.2 5.2 3.0 0.8 10.0 2.5
And NEVER Breathe a Word about about Monetary Policy Uncertainty!
1990 Q4 - 1991 Q1 Gulf
War I
1993 Q2 - 1993 Q3
Clinton Tax Reforms
2001 Q4 - 2002 Q2
9/11 Attacks
2002 Q4 - 2003 Q2
Gulf War II
2004 Q2 - 2004 Q4
Bush/Kerry Election
2008 Q3 - 2009 Q4
Lehman's and recession
2010 Q1 - 2013 Q1
Debt-ceiling crisis
1983 Q3 2013 Q1 Overall Average
Overall Economic Uncertainty 11 8.8 7.7 13.5 5.2 10.2 15.8 5.5 Economic Policy Uncertainty 5.5 6.3 1.2 4.8 2.8 0.8 6.8 1.7 All Fiscal Matters 1 5.5 1.5 0 0 0.4 3.3 1.0
Taxes Only 0 3.3 0.2 0 0 0.3 1.4 0.4 Spending Only 0.5 1 1 0 0 0.2 1.2 0.3
Monetary Policy 0 0 0 0 0 0 0 0 Health Care 0 2 0 0 0 0.2 0.5 0.1 National Security and War 5.3 0.3 0 2 0 0 0.1 0.2 Financial Regulation 0 0 0 0 0 0.2 1.2 0.2 Sovereign debt, currency crisis 0 0 0 0 0 0 0.8 0.1 U.S. Elections and Leadership Changes 0 0 0 0.2 2.2 0 0.9 0.2 Other Specified Policy Matters 0 0.5 0.7 0 0.2 0 0.5 0.2 Politics, Unspecified 0.5 1 0 3 0.7 0 1.6 0.3 Sum of Policy & Politics Categories 6.8 9.3 2.2 5.2 3.0 0.8 10.0 2.5
Big 5 Sources of Economic Policy Uncertainty, 1985Q1 to 2013Q3
0
20
40
60
80
100
120
140
160
Jan-
85Ju
l-85
Jan-
86Ju
l-86
Jan-
87Ju
l-87
Jan-
88Ju
l-88
Jan-
89Ju
l-89
Jan-
90Ju
l-90
Jan-
91Ju
l-91
Jan-
92Ju
l-92
Jan-
93Ju
l-93
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Monetary Fiscal Health Security Regulation
Note: This chart is a quarterly version of Table 1 in Measuring Economic Policy Uncertainty by Baker, Bloom and Davis. It shows the 5 most important sources of economic policy uncertainty based on frequency counts of newspaper articles.
U.S. Economic Policy Uncertainty: A Longer Term Perspective
38
Notes: Index of Policy-Related Economic Uncertainty composed of quarterly news articles containing uncertain or uncertainty, economic or economy, and policy relevant terms (scaled by the smoothed total number of articles) in 5 newspapers (WP, BG, LAT, WSJ and CHT). Data normalized to 100 from 1900-2011.
Newspaper-Based EPU Index from 1900 Scaled by Economy/ic articles rather than all articles January 1900 December 2012
100
200
300
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Polic
y U
ncer
tain
ty In
dex
Versailles conference
9/11 and Gulf War II
Debt Ceiling
OPEC II
Lehman and TARP Great
Depression, New Deal and FDR
Post-War Strikes, Truman-Dewey
Great Depression Relapse Gulf
War I Black Monday
Start of WW I
OPEC I
Russian Crisis
Watergate
Assassination of McKinley
Gold Standard Act
Berlin Conference
McNary Haughen farm bill
PresenterPresentation NotesPolitical fighting:Taft v Roosevelt over Conservatives vs Progressives in Republican Party (1910-1913)The November 1912 spike is the election of Woodrow Wilson over Roosevelt (second) and Taft (third)
Close elections:Wilson v Hughes in 1916Truman vs Dewey in 1948JFK-Nixon 1960
Major economics policies:Woodrow Wilsons New Freedom progressive agenda (1913-1921)Calvin Coolidge (1923-29) very laissez-faire and inactive (no new experiments), reduced size of government and debt, and scientific taxation (minimize tax changes see http://en.wikipedia.org/wiki/Calvin_Coolidge)New Deal 1932 plus last year under HooverJFK New Frontier starts in 1960LBJ Great Society from 1964 (like New Frontier uses task forces of outsiders, including lots of economists)
Large daily stock market moves, 1900-2012
Correlation of number of policy-triggered jumps per year with EPU index is 0.78
Policy increases Non-Policy increases
Policy decreases Non-Policy decreases
Reproduced from What Triggers Large Stock Market Jumps? by Baker, Bloom & Davis
Based on human readings of next-day news articles About large S&P Index moves in the New York Times And the Wall Street Journal. Jump threshold: +/- 2.5%
Assessing the Effects of EPU: Summary of our Work
41
1.Micro approach: Exploit differences in exposure to government spending to estimate the effects of EPU on firm-level implied volatility, investment rates and employment growth
1.Macro approach: Include our EPU measure in otherwise standard VAR models of aggregate dynamics. Estimate the effects of EPU innovations on aggregate output, investment and employment.
Microdata: Our firm-level panel regressions exploit differences in industry exposure to government spending
Source: Authors calculations using the Federal Registry of Contracts (1999-2013) matched to Compustat firms (using Compustat parent & D&B names).
Note: We assign an intensity value of 0.43 to Health Services based on government spending share in this sector.
Microdata Results: Firms in sectors with greater exposure to government spending have higher stock volatility when EPU is high
Magnitude of Implied Volatility Effects Summary Statistics Mean firm-level implied volatility = 0.5 Time-Series st. dev. of firm-level implied vol.: -- 0.14 for low-exposure firms -- 0.13 for high-exposure firms
Illustrative Calculation Consider a 100 log-point increase in EPU for a firm with
an exposure level of 0.25. Use IV results to get implied impact on firms implied
volatility: (0.25)(1.0)(1.17)=0.29 -- About 60% of mean firm-level volatility -- More than twice the average time-series st. dev.
45
Using annual firm-level data from 2000.
Microdata Results: High EPU depresses investment And employment growth at firms in sectors with high exposure to government spending.
46
For a firm with average investment rate and average contract exposure, doubling EPU results in estimated investment fall of only 0.08 percentage points (~1.2% fall).
For firms in the 90th percentile of exposure rates, the impact is much larger, with predicted investment drops of 0.8-5.0 percentage points, depending on specification and baseline investment.
Magnitude of Firm-Level Investment Effects
Figure 12: Estimated Industrial Production and Employment after a Policy Uncertainty Shock
Indu
stria
l Pro
duct
ion
Impa
ct
(% d
evia
tion)
Months after the economic policy uncertainty shock
Notes: This shows the impulse response function for Industrial Production and employment to an 102 unit increase in the policy-related uncertainty index, the increase from 2006 (the year before the current crisis) to 2011. The central (black) solid line is the mean estimate while the dashed (red) outer lines are the one-standard-error bands. Estimated using a monthly Cholesky Vector Auto Regression (VAR) on the EPU index, log(S&P 500 index), federal reserve funds rate, log employment, log industrial production and linear time trend. Fit to data from 1985 to 2011.
Empl
oym
ent I
mpa
ct
(mill
ions
)
-5-4
-3-2
-10
12
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
-3-2
-10
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
-4-3
-2-1
0Es
timat
ed im
pact
on
indu
stria
l pro
duct
ion
0 5 10 15 20 25 30 35
Figure 13: Robustness of Estimates to Different VAR Specifications
Months after the policy uncertainty shock Notes: This shows the impulse response function for GDP and employment to an 102 unit increase in the policy-related uncertainty index. Estimated using a monthly Cholesky Vector Auto Regression (VAR) of the uncertainty index, log(S&P 500 index), federal reserve funds rate, log employment, log industrial production and time trend unless otherwise specified. Data from 1985 to 2011.
Indu
stria
l Pro
duct
ion
Impa
ct
(% d
evia
tion)
Baseline
Bivariate (uncertainty and log industrial production)
Three months of lags
Nine months of lags
Uncertainty index has equal weight
on measures Adding VIX and putting it first
Assessing the Effects of EPU: Selected Other Work
49
1.Geography of Great Recession: Shoag and Veuger (2013) find larger unemployment rate rises from 2006 to 2009 in states with (a) greater increases in state-level uncertainty and (b) institutions less well suited for mediating the effects of a general rise in uncertainty.
2. International Spillovers: The IMFs World Economic Outlook (2013) finds that increases in U.S. and European EPU reduce growth in other regions of the world, with bigger spillover effects from U.S. EPU.
3.Firm-Level Studies: Julian and Yook (2010) and Gulen and Ion (2013) find that political and policy uncertainty retard business investment. Durnev (2010) finds a lower sensitivity of investment to stock prices in election years.
50
Methodology: New methods to construct, evaluate and refine measures of economic uncertainty based on frequency counts of newspaper articles and other text sources.
Factual Claim: U.S. EPU levels are at historically high levels from 2008-2013. Major episode in the 1930s as well.
Data Products: New monthly indices of EPU for U.S., China, Germany, Japan, Spain, France, Italy, U.K., India, and Canada. A new daily EPU index for the United States
Summary
51
Evidence of EPU Effects: Firm-level regressions: high levels of EPU
reduce investment and employment growth at firms with high exposure to government contract awards, and raise stock volatility
Simple VAR models: increases in EPU foreshadow declines in output, investment and employment.
Correlates of Rising EPU: Secular growth in U.S. EPU coincide with growth of government and increasing political polarization Our paper with Canes-Wrone & Rodden
Summary
More on Economic Policy Uncertainty at www.policyuncertainty.com
http://www.policyuncertainty.com/
End of Slides for Prepared Remarks
53
PresenterPresentation NotesWhy So Much Political Gridlock and Such High Policy Uncertainty?
References Bernanke, Ben, 1983. Irreversibility, Uncertainty and Cyclical Investment, Quarterly Journal of Economics,
98, pp. 85106. Carroll, Royce, Jeff Lewis, James Lo, Nolan McCarty, Keith Poole, and Howard Rosenthal, 2008. Who Is
More Liberal, Senator Obama or Senator Clinton? 18 April. Durnev, Art, 2010. The Real Effects of Political Uncertainty: Elections and Investment Sensitivity to Stock
Prices, working paper, McGill University, September. Fernandez-Villaverde, Jesus, Guerron-Quintana, Pablo, Kuester, Keith and Juan Rubio-Ramirez, 2011.
Fiscal volatility shocks and economic activity, University of Pennsylvania mimeo. Gentzkow, Matthew and Jesse Shapiro, 2010. What Drives Media Slant? Evidence from U.S. Daily
Newspapers, Econometrica, 78, 35-72. Gilchrist, Simon, Jae W. Sim and Egon Zakrajsek, 2010. Uncertainty, Financial Friction and Investment
Dynamics, working paper. Gulen, Huseyin and Mihai Ion, 2013. Policy Uncertainty and Corporate Investment, Working Paper,
Purdue. International Monetary Fund, 2013. World Economic Outlook: Hopes, Realities, Risks, April. Julio, Brandon and Youngsung Yook, 2010. Political Uncertainty and Corporate Investment Cycles, Journal
of Finance, forthcoming. Narita, Futoshi, 2011. Hidden Actions, Risk-Taking, and Uncertainty Shocks, University of Minnesota,
February. Panousi, Vasia and Papanikolaou, Dimitris, 2012. Investment, idiosyncratic risk and ownership, Journal of
Finance Pastor, Lubos and Veronesi, Pietro, 2012. Uncertainty about government policy and stock prices, Journal
of Finance, 67, 1219-1264. Pastor, Lubos and Veronesi, Pietro, 2013. Political Uncertainty and Risk Premia, forthcoming, Journal of
Financial Economics. Shoag, Daniel and Stan Veuger, 2013. Uncertainty and the Geography of the Great Recession, AEI
Economics Working Paper 2013-05, September. 54
Two Broad Classes of Explanations:
1) Expanding Scale and Scope of Government
2) Increasing Political Polarization These two types of explanations are not mutually exclusive, and they could overlap. Other explanations are also possible.
What Drives the Secular Rise in EPU Since 1960?
050
100
150
200
250
New
s ec
onom
ic p
olic
y un
certa
inty
1950 1960 1970 1980 1990 2000 2010
US Newspaper-based policy uncertainty index shows a strong upwards trend since the 1960s
Source: www.policyuncertainty.com Data normalized to 100 across the whole period. Papers covered are Boston Globe, Chicago Tribune, LA Times, New York Times, Wall Street Journal and Washington Post.
JFK assassination
9/11
OPEC I
Black Monday
Lehman and TARP
Debt Ceiling; Euro Debt
OPEC II
Fiscal Cliff and
Shutdow
n
Volcker Rate rises Gulf
War I
Gulf War II
http://www.policyuncertainty.com/
2025
3035
40Go
vern
men
t sha
re o
f GDP
050
100
150
200
250
Polic
y un
certa
inty
1950 1960 1970 1980 1990 2000 2010year
One source of rising policy uncertainty could be the expansion of Government spending
Notes: Total government spending as a % of GDP from the US BEA (federal, state, and local spending on consumption, investment and transfer payments). See http://www.bea.gov/faq/index.cfm?faq_id=552
Polic
y U
ncer
tain
ty
Gov
ernm
ent s
pend
ing,
% o
f GD
P
http://www.bea.gov/faq/index.cfm?faq_id=552
Notes: Page counts from the Code of Federal Regulations (CFR), which describes all Federal regulations in effect in a given year, CFR data from Dawson and Seater (2013), spliced to data from Crews (2013) for 2006 to 2012. The CFR and Policy Uncertainty series are scaled to 100 from 1949 to 2012.
0
50
100
150
200
250
Polic
y U
ncer
tain
ty
Cod
e of
Fed
eral
Reg
ulat
ions
Pag
e C
ount
Another source of rising policy uncertainty could be the increasing volume of Government regulation
PresenterPresentation Notes1
Notes: Page counts from the Code of Federal Regulations (CFR), which describes all Federal regulations in effect in a given year, CFR data from Dawson and Seater (2013), spliced to data from Crews (2013) for 2006 to 2012. The CFR and Policy Uncertainty series are scaled to 100 from 1949 to 2012.
0
50
100
150
200
250The size and complexity of the federal tax code has also increased enormously in recent decades.
Polic
y U
ncer
tain
ty
Cod
e of
Fed
eral
Reg
ulat
ions
Pag
e C
ount
Another source of rising policy uncertainty could be the increasing volume of Government regulation
PresenterPresentation Notes1
Republican-Democrat differences in Congressional voting patterns point to rising political polarization
Notes: DW-Nominate index is the difference between the mean Republican and mean Democratic DW-Nominate roll-call ideal points generated by McCarty, Poole, and Rosenthal. Bonica (2013) has created ideological scores for each member of Congress based on scaling of campaign contribution records. We display the difference between the means of Republicans and Democrats in Congress.
The electorate also appears to perceive the two parties as increasingly polarized
Notes: DW-Nominate index is the standard-deviation of the first dimension of the DW-Nominate roll-call idealized points. The percentage seeing large difference between Democrats and Republicans in the American National Electoral Survey.
In contrast, U.S. voter preferences are unimodal and show little evidence of polarization
Notes: This scale was created by Ansolabehere, Rodden, and Snyder (2006) from responses to a variety of questions on economic policy issues appearing in each General Social Survey from 1974 to 2004.
1) Implied volatility of equity returns (e.g., VIX)
2) Newspaper-based measures (e.g., our EPU index)
3) Forecaster disagreement & uncertainty (e.g., Philly Fed)
4) Qualitative surveys (e.g., our Beige Book count)
5) Output volatility (e.g., GDP GARCH)
6) Dispersion and volatility of business-level outcomes
= Available in real-time
= Available with a delay of several weeks or so
Economic Uncertainty Measures & Proxies
Forecaster Disagreement about Future Inflation and
Future Government Purchases
66
.5
1 1.
5
Gulf War II & Fed Interest Rate Cuts
Gulf War I
Clinton Election
Budget Enforcement
Act
Obama Election, Banking
Crisis
Balanced Budget Act
Figure 4: Interquartile Range of Four-Quarter-Ahead CPI Inflation Forecasts, Percentage-Point Spread, Q1 1985 to Q4 2012
Notes: From the Federal Reserve Bank of Philadelphia Survey of Professional Forecasters (made every quarter; offset one month due to release dates such that Q4 covers Nov-Jan. Displays the Interquartile (IQ) range of the quarterly 1-year-ahead forecasts of CPI.
IQ R
ange
of A
nnua
lized
Infla
tion
Rat
e Fo
reca
sts
QE2 and Fed Statements
0 .0
05
.01
.015
.0
2 .0
25
IQR
of G
over
nmen
t Pur
chas
es F
orec
asts
, % o
f GD
P
Notes: Based on data from the Federal Reserve Bank of Philadelphia Survey of Professional Forecasters. We compute the interquartile range (IQR) of 1-year ahead forecasts of government purchases of goods and services and scale the IQR by the median forecast. We carry out these calculations separately for federal purchases and state & local purchases, then aggregate using the purchases share of nominal GDP for each level of government. See the main text for additional details.
Figure 5: Interquartile Range of Government Purchases Forecasts, Q1 1985 Q2 2013
Balanced Budget Act
Clinton Election
9/11
Budget Enforcement Act
Obama Election, Banking
Crisis
Debt Ceiling Dispute
Gulf War II
Economic Policy Uncertainty Indexes for Other Countries
69
China EPU Index, Jan1995-Jun2013, Based on South China Morning Post
70
0
50
100
150
200
250-New Prime Minister (Kaifu) -Structural Impediments Initiative (March 2-4)
Gulf War Soviet August Coup
- G7 Summit in Tokyo - Election (LDP less than 1/2 seats in the House)
NATO Summit (Brussel)
G7 Summit in Scotia, canada (June 15-17)
Prime Minister switched back to LDP
Collapse of Yamaichi Securities (1 of 4 Major Securities Companies)
New Prime Minister (Obuchi)
House of Representatives Dissolve & General Election Prime Minister
(Mori) announces stepping down
Prime Minister Koizumi reforms his cabinet and Heizo Takenaka to be the minister of Economic, Fiscal and Financial Policy to deal with nonperforming loans (NPLs)
Iraq War House of Representatives Disolution postponed
Nikkei drops to 8567
BOJ intervenes the exchange rate market to sell yen for dollars (1st time in 6.5 yrs)
Democratic Party announces possible tax increase
- State of Union Address by President Bush - FRB lowers Fed Funds Rate by 0.75%
House of Representatives Dissolve
Japan EPU Index, Sep. 1983 to June 2013, Based on Yomiuri and Asahi
71
50
100
150
200
250
2003 2008 2013
72
India Policy Uncertainty Index January 2003 to June 2013
Using a 50% weight on six major Indian newspapers and a 50% weight on forecaster disagreement measures. Constructed in collaboration with Sanjai Bhagat, Pulak Ghosh and Srivivasan Rangan. Downloaded from www.PolicyUncertainty.com on 7 July 2013
Congress Party wins National
Election
Bear Sterns
India-US Nuclear Deal
Lehman Failure Price
Hikes
Exchange Rate Concerns
Lokpal Bill
http://www.PolicyUncertainty.com
0 10
0 20
0 30
0
1997 2002 2007 2012
UK Economic Policy Uncertainty Index
Notes: UK Policy Uncertainty Index composed of news component and dispersion measures regarding budget balance and consumer prices forecasts. News measure composed of the monthly number of news articles containing uncertain or uncertainty, economic or economy, as well as policy relevant terms (scaled by the smoothed number of articles containing the word today). Policy relevant terms include: policy, tax, spending, regulation, Bank of England, budget, and deficit. Index covers January 1997 to June 2013. Papers include the Financial Times and the Times of London. Forecast dispersion component data from Consensus Economics forecasts.
9/11 Russian Crisis
Papandreou call for referendum
European Constitution Rejection/Summit
Lehman Bros.
Greek Bailout Request,
Rating Cuts
Northern Rock Takeover
Treaty of Accession/ 2nd Gulf War
European Constitution
Signing
Spanish Bank
Bailout Debates
50
100
150
200
250
300
1997 2002 2007 2012
9/11
France Economic Policy Uncertainty Index
Russian Crisis
Papandreou calls for referendum,
later resigns
European Constitution Rejection/Summit
Lehman Bros.
Greek Bailout Request, Rating Cuts
Northern Rock Support
Treaty of Accession/ 2nd Gulf War
Nice Treaty Referendum
Fran
ce P
olic
y U
ncer
tain
ty In
dex
European Sovereign Debt
Crisis
Notes: France Economic Policy Uncertainty Index composed of news component and dispersion measures regarding budget balance and consumer prices forecasts. News measure composed of the monthly number of news articles containing uncertain or uncertainty, economic or economy, as well as policy relevant terms (scaled by the smoothed number of articles containing today). Policy relevant terms include: policy, tax, spending, regulation, central bank, budget, and deficit. Index covers Jan 1997 June 2013. Papers include the Le Monde and Le Figaro. Searches done in native language of country. Forecast dispersion component data from Consensus Economics forecasts.
50
100
150
200
250
1997 2002 2007 2012
9/11
Germany Economic Policy Uncertainty Index
Russian Crisis
Papandreou call for
referendum; later resigns
Italy Rating Cut
German Elections
Eurozone Stresses
Greek Bailout Request,
Rating Cuts
Northern Rock Support/ Takeover
Treaty of Accession And Gulf War
Ger
man
y Po
licy
Unc
erta
inty
Inde
x
Notes: Germany Economic Policy Uncertainty Index composed of news component and dispersion measures regarding budget balance and consumer prices forecasts. News measure composed of the monthly number of news articles containing uncertain or uncertainty, economic or economy, as well as policy relevant terms (scaled by the smoothed number of articles containing today). Policy relevant terms include: policy, tax, spending, regulation, central bank, budget, and deficit. Index covers Jan 1997 Jun 2013. Papers include the FAZ and Handelsblatt. Searches done in native language of country. Forecast dispersion component data from Consensus Economics forecasts.
Lehman Bros.
50
100
150
200
250
1997 2002 2007 2012
9/11
Italy Economic Policy Uncertainty Index
Asian Crisis
Papandreou call for referendum;
later resigns Italy Rating Cut
European Constitution Rejection/Summit
Lehman Bros.
Greek Bailout Request,
Rating Cuts Treaty of
Accession Gulf War II
Italy
Pol
icy
Unc
erta
inty
Inde
x
Notes: Italy Economic Policy Uncertainty Index composed of news component and dispersion measures regarding budget balance and consumer prices forecasts. News measure composed of the monthly number of news articles containing uncertain or uncertainty, economic or economy, as well as policy relevant terms (scaled by the smoothed number of articles containing today). Policy relevant terms include: policy, tax, spending, regulation, central bank, budget, and deficit. Index covers Jan 1997 Jun 2013. Papers include the Corriere della Serra and La Repubblica. Searches done in native language of country. Forecast dispersion component data from Consensus Economics forecasts.
0 50
10
0 15
0 20
0 25
0
2001 2006 2011
Spai
n Po
licy
Unc
erta
inty
Inde
x
9/11
Spain Economic Policy Uncertainty Index
Lehman Bros. Greek Bailout
Request, Rating Cuts
Treaty of Accession And Gulf War II
Madrid Bombings
European Sovereign
Debt Stresses
European Constitution Rejection/Summit
Euro Adoption
Northern Rock Support/ Takeover
Notes: Spain Economic Policy Uncertainty Index composed of news component and dispersion measures regarding consumer prices forecasts. News measure composed of the monthly number of news articles containing uncertain or uncertainty, economic or economy, as well as policy relevant terms (scaled by the smoothed number of articles containing today). Policy relevant terms include: policy, tax, spending, regulation, central bank, budget, and deficit. Index covers Jan 2001 Jun 2013. Papers include El Mundo and El Pais. Searches done in native language of country. Forecast dispersion component data from Consensus Economics forecasts.
Canadian Economic Policy Uncertainty Index
Update
50
100
150
200
250
Can
adia
n Po
licy
Unc
erta
inty
Inde
x
Source: www.policyuncertainty.com. Created with help from Dorinda So from the Institute for Competitiveness & Prosperity www.competeprosper.ca
1st Gulf War
9/11
Clinton Election
2nd Gulf War
Debt Ceiling
Dispute; Euro Debt
Canadian Election and Lehman Bros.
Quebec Referendum
Canadian Elections
Canadian Election
http://www.policyuncertainty.com/http://www.competeprosper.ca/
More on the Audit and Another Suitability Check
79
Running the Newspaper Article Audit 1. Design, evaluate, and refine audit template 2. Define the Audit Universe: All articles coded
EU=1 by automated search 3. Sample Audit Universe and manually read articles
Randomly sample 3 articles per month for 5 of the newspapers; 45 articles per quarter
4. Code each article: EU, EPU, type of EPU, etc. 5. Compare manually read truth to results from
automated search with various permutations of policy terms
80
2 4
6 8
10
50
100
150
200
250
1950 1960 1970 1980 1990 2000 2010
Une
mpl
oym
ent n
ews
sear
ch
Une
mpl
oym
ent r
ate
Notes: Index of Unemployment News composed of quarterly news articles containing terms like unemployment, layoffs, or job loss (scaled by the smoothed total number of articles) in 5 newspapers (WP, BG, LAT, WSJ and CHT). Data normalized to 100 from Jan 1900-Dec 2011. Unemployment data is overall seasonally adjusted unemployment rate taken from the BLS.
Suitability check: news based indices for tracking unemployment also seem to work well
Correlation=0.72
More Checks and Comparisons
82
0 .0
1 .0
2 .0
3
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Debt Ceiling Articles Government Shutdown Articles
Debt Ceiling and Government Shutdown in U.S. Newspapers, Jan. 1985 to Nov. 2013
Fraction of Articles In U.S. Newspapers
1995 Shutdown
Summer 2011 Debt-Ceiling Dispute
Fisc
al C
liff
This chart reports frequency counts of articles containing debt ceiling or government shutdown, expressed as a fraction of all articles in U.S. newspapers covered by Access World News Newsbank Service (1000+ newspapers).
Note: Data for November 2013 are based on part of the month.
Par
tial G
over
nmen
t Shu
tdow
n an
d D
ebt C
eilin
g 2
Somewhat Different Experiences in Great Depression and Great Recession
Notes: Index of Policy-Related Economic Uncertainty composed of quarterly news articles containing uncertain or uncertainty, economic or economy, and policy relevant terms (scaled by the smoothed total number of articles) in 5 newspapers (WP, BG, LAT, WSJ and CHT). Data normalized to 100 from 1900-2011.
50
100
150
200
250
300
New
s-Ba
sed
EPU
0 .0
1 .0
2 .0
3 .0
4 .0
5
Rea
lized
Sto
ck V
olat
ility
1928 1930 1932 1934 1936
Realized Stock Volatility News-Based EPU
50
100
150
200
250
300
New
s-Ba
sed
EPU
0 .0
1 .0
2 .0
3 .0
4 .0
5
Rea
lized
Sto
ck V
olat
ility
2006 2008 2010 2012
Lehman and
TARP Stimulus Debate
Debt Ceiling
Stock Crash
100 Days, New Deal, Gold Std.
2nd New Deal; SS;
NLRB Depression Bottom; Bonus
Army; Revenue Act
Comparison Newsbank (daily data summed to the monthly level) with our 10 paper series
Different weighting schemes for index components give similar results
50
100
150
200
Baseline (main) Economic Policy Uncertainty Index
Principal Component Factor Index
Equal-Weighted Index (1/4 each on z-scores)
50
100
150
200
250
300
1985 1990 1995 2000 2005 2010
Circulation weighting in news-based index component matters little C
ircul
atio
n W
eigh
ted
Equa
l Wei
ghtin
g
Notes: Index of Policy-Related Economic Uncertainty composed of quarterly news articles containing uncertain or uncertainty, economic or economy, and policy relevant terms (scaled by the smoothed total number of articles) in 5 newspapers (WP, BG, LAT, WSJ and CHT). Data normalized to 100 from Jan 1900-Dec 2011. Government expenditure is total federal, state, and local expenditures over GDP, annually.
10
20
30
40
50
60
VIX
(red
)
50
100
150
200
250
Econ
omic
Pol
icy
Unc
erta
inty
Inde
x (B
lue)
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
9/11 WorldCom & Enron
Gulf War II
Credit Crunch
Asian crisis
Gulf War I
Obama Election, Banking Crisis
Debt Ceiling
LTCM default
US index is similar to the VIX index of 1 month implied S&P500 stock market volatility, but not the same
Correlation VIX and Policy Uncertainty is 0.55
Large interest rate cuts
Clinton election
Source: www.policyuncertainty.com. Data until October 2012
http://www.policyuncertainty.com/
Notes: Data from The buzz: Links between policy uncertainty and equity volatility, by Krag Gregory and Jose Rangel, Goldman Sachs, November 12, 2012.
Correlation EPU and 1 month=0.578 Correlation EPU and 10 years=0.855
10
20
30
40
50
60
50
100
150
200
250
Eco
nom
ic p
olic
y un
certa
inty
2002 2004 2006 2008 2010 2012
Implied volatility
1 Month Implied Volatility ()
10 Year Implied Volatility (+)
Economic Policy Uncertainty ()
EPU Index Is More similar to 10 year index of implied volatility on the S&P500 (correlation 0.73)
93
Key variable of interest is the interaction between aggregate EPU change and firm-level exposure to government contract awards.
Firm-level exposure measures are time invariant. We calculate exposure as weighted SIC-level government contract intensity, with weights given by firms own industry distribution of sales.
94
Controls include interactions of firm-level exposure with current change and forecasted future change in government purchases.
And interaction with change in VIX, plus firm and time fixed effects.
Economic Uncertainty: Multi-faceted and hard to measureEconomic Uncertainty: Multi-faceted and hard to measureBut important inmany theories &mechanisms:-- Option value of waiting-- Precautionary savings-- Cost of finance investment -- Ambiguity aversion-- Managerial risk aversionTodays Focus: Newspaper-based measures of EconomicPolicy UncertaintyTodays Focus: Newspaper-based measures of EconomicPolicy UncertaintyConsider other EPU measurestoo, partly asa cross-checkon newspaper-based measuresResearch ObjectivesResearch ObjectivesWhat Do We Want our EPU Index to Capture?Constructing Our Newspaper-Based EPU Index for the U.S.Constructing Our Newspaper-Based EPU Index for the U.S.Constructing Our Newspaper-Based EPU Index for the U.S.Constructing Our Newspaper-Based EPU Index for the U.S.Slide Number 13Slide Number 14Two Measurement ConcernsAssessing Suitability ConcernFigure 7: Newspaper-based index of equity market uncertainty compared to market-based VIX, January 1990 to December 2012 Political Slant in Newspaper Coverage of Economic Policy UncertaintyFigure 9: Political slant plays little role in time-series behavior of news-based EPU indexSlide Number 20Figure 8: Human Readings and Computer-Automated Method Yield Similar Newspaper-Based EPU Indexes, 1985Q1 to 2012Q2 Other Audit ResultsOther Audit ResultsSelecting a Preferred Term SetError rates for 28,000 permutations of 14 policy terms in a human audit sample of 3,500 randomly selected articlesMore Sophisticated Methods?Three Other Types of Indicators of Economic Policy Uncertainty for the United States Slide Number 28Slide Number 29Counts of Uncertainty and Policy-Related Uncertainty per Beige Book, 1983Q3-2013Q4 Evidence about Sources of Policy Uncertainty Slide Number 32Slide Number 33Beige Books Tell a Similar Story Counts By Category and Selected Time Period, 1983Q3 to 2013Q1 But also Highlight Concerns Related to Financial Regulation, Sovereign Debt, and PoliticsAnd NEVER Breathe a Word about about Monetary Policy Uncertainty! Big 5 Sources of Economic Policy Uncertainty,1985Q1 to 2013Q3U.S. Economic Policy Uncertainty: A Longer Term PerspectiveSlide Number 39Large daily stock market moves, 1900-2012Assessing the Effects of EPU: Summary of our WorkMicrodata: Our firm-level panel regressions exploit differences in industry exposure to government spendingMicrodata Results: Firms in sectors with greater exposure to government spending have higher stock volatility when EPU is highMagnitude of Implied Volatility EffectsSlide Number 45Magnitude of Firm-Level Investment Effects Slide Number 47Slide Number 48Assessing the Effects of EPU: Selected Other WorkSummarySummaryMore on Economic Policy Uncertaintyat www.policyuncertainty.comEnd of Slides for Prepared RemarksReferencesSlide Number 55Slide Number 56Slide Number 57Slide Number 58Slide Number 59Slide Number 60Republican-Democrat differences in Congressional voting patterns point to rising political polarizationThe electorate also appears to perceive the two parties as increasingly polarizedIn contrast, U.S. voter preferences are unimodal and show little evidence of polarizationEconomic Uncertainty Measures & ProxiesForecaster Disagreement about Future Inflation and Future Government PurchasesSlide Number 67Slide Number 68Economic Policy Uncertainty Indexes for Other CountriesChina EPU Index, Jan1995-Jun2013, Based on South China Morning Post Japan EPU Index, Sep. 1983 to June 2013, Based on Yomiuri and Asahi Slide Number 72UK Economic Policy Uncertainty IndexSlide Number 74Slide Number 75Slide Number 76Slide Number 77Slide Number 78More on the Audit andAnother Suitability CheckRunning the Newspaper Article AuditSlide Number 81More Checks and ComparisonsDebt Ceiling and Government Shutdown in U.S. Newspapers, Jan. 1985 to Nov. 2013Slide Number 84Comparison Newsbank (daily data summed to the monthly level) with our 10 paper seriesSlide Number 86Slide Number 87US index is similar to the VIX index of 1 month implied S&P500 stock market volatility, but not the sameSlide Number 89Slide Number 93Slide Number 94