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Economic uncertainty before and during the COVID-19 pandemic

Author

Listed:
  • Altig, Dave
  • Baker, Scott
  • Barrero, Jose Maria
  • Bloom, Nicholas
  • Bunn, Philip
  • Chen, Scarlet
  • Davis, Steven J.
  • Leather, Julia
  • Meyer, Brent
  • Mihaylov, Emil
  • Mizen, Paul
  • Parker, Nicholas
  • Renault, Thomas
  • Smietanka, Pawel
  • Thwaites, Gregory

Abstract

We consider several economic uncertainty indicators for the US and UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based policy uncertainty, Twitter chatter about economic uncertainty, subjective uncertainty about business growth, forecaster disagreement about future GDP growth, and a model-based measure of macro uncertainty. Four results emerge. First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record. Second, peak amplitudes differ greatly – from a 35% rise for the model-based measure of US economic uncertainty (relative to January 2020) to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: Implied volatility rose rapidly from late February, peaked in mid-March, and fell back by late March as stock prices began to recover. In contrast, broader measures of uncertainty peaked later and then plateaued, as job losses mounted, highlighting differences between Wall Street and Main Street uncertainty measures. Fourth, in Cholesky-identified VAR models fit to monthly U.S. data, a COVID-size uncertainty shock foreshadows peak drops in industrial production of 12–19%.

Suggested Citation

  • Altig, Dave & Baker, Scott & Barrero, Jose Maria & Bloom, Nicholas & Bunn, Philip & Chen, Scarlet & Davis, Steven J. & Leather, Julia & Meyer, Brent & Mihaylov, Emil & Mizen, Paul & Parker, Nicholas &, 2020. "Economic uncertainty before and during the COVID-19 pandemic," Journal of Public Economics, Elsevier, vol. 191(C).
  • Handle: RePEc:eee:pubeco:v:191:y:2020:i:c:s0047272720301389
    DOI: 10.1016/j.jpubeco.2020.104274
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    More about this item

    Keywords

    Forward-looking uncertainty measures; Volatility; COVID-19; Coronavirus;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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