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From text to trouble: understanding the limits of text-derived trade policy uncertainty measures

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  • Schröder, Maximilian

Abstract

Uncertainty surrounding trade policy has become a key factor shaping the investment and production decisions of firms. While text-based measures such as the trade policy uncertainty (TPU) index are widely used to track these developments, their readings can be misinterpreted when treated as direct measures of uncertainty shocks. Keyword-driven co-mentions might, for example, inflate the index in periods of heightened trade tensions. This box introduces an alternative text-based measure, constructed by regressing the raw TPU index on a set of covariates, that can be more reliably incorporated into standard macroeconomic models by removing some of the contamination and offers a clearer view of how trade policy uncertainty affects economic activity. JEL Classification: F13, E66, E32

Suggested Citation

  • Schröder, Maximilian, 2026. "From text to trouble: understanding the limits of text-derived trade policy uncertainty measures," Economic Bulletin Boxes, European Central Bank, vol. 8.
    • Handle: RePEc:ecb:ecbbox:2026:0008:2
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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