Does Economic Policies Uncertainty affect Economic Activity? Evidences from the United States of America

The last global financial and real turmoil highlighted the importance of stable and effective economic policies. Using a recently developed measure of economic policy uncertainty, we estimate - for the United States of America, from 1973 to 2014 - the uncertainty impact upon economic activity volatility, as captured by a Nonlinear ARCH model. We learned that inflation volatility exerts the largest overall impact, followed by personal consumption expenditure volatility, while the commercial and industrial loans produce a small (although significant) effect. We found evidences of a U-shaped impact of policy uncertainty upon volatility. However, the net effect is direct: an increase in uncertainty leads to an overall increase in economic volatility. We conclude that a stable and predictable economic policy is critical for the economic growth.