Scott R. Baker, Nicholas Bloom, and Steven J. Davis, Measuring Economic Policy Uncertainty, March 2015.


We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage. Our index spikes near tight presidential elections, after both Gulf wars, the 9/11 attacks, and during government shutdowns and debt ceiling debates. Several pieces of evidence – including a human audit of 10,000 newspaper articles – indicate that our EPU index proxies movements in policy-related economic uncertainty. Using firmlevel micro data, we show that policy uncertainty increases stock-price volatility and reduces investment and employment in government dependent sectors like defense, healthcare, and infrastructure construction. At the macro-level, increases in policy uncertainty foreshadow declines in investment, output, and employment, both in the US and in our 12 country panel. Extending our US data back to 1900, we find that the EPU index rose dramatically during the Great Depression and has trended slowly upwards since the 1960s.

Research partnership

Toulouse Network for Information Technology (TNIT)