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The power of print: Uncertainty shocks, markets, and the economy

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  • Alexopoulos, Michelle
  • Cohen, Jon

Abstract

There has been, in recent years, a renewed interest in and a growing recognition of the role played by uncertainty shocks in driving fluctuations in the economy and in asset markets. We create new text-based indicators of both general economic and policy specific uncertainty from New York Times and use them first, to chart changes in the level of uncertainty in the US for the period 1985–2007, second, to determine the role of policy in these swings, and, third to assess their impact on the economy, equity markets, and business cycles. Overall, our results indicate that uncertainty shocks – both general and policy related – depress the level of economic activity, significantly increase stock market volatility, and decrease market returns.

Suggested Citation

  • Alexopoulos, Michelle & Cohen, Jon, 2015. "The power of print: Uncertainty shocks, markets, and the economy," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 8-28.
  • Handle: RePEc:eee:reveco:v:40:y:2015:i:c:p:8-28
    DOI: 10.1016/j.iref.2015.02.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ansgar Belke & Dominik Kronen, 2017. "The impact of uncertainty on macro variables - An SVAR-based empirical analysis for EU countries," ROME Working Papers 201708, ROME Network.
    2. Hammoudeh, Shawkat & McAleer, Michael, 2015. "Advances in financial risk management and economic policy uncertainty: An overview," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 1-7.
    3. Chuliá, Helena & Guillén, Montserrat & Uribe, Jorge M., 2017. "Measuring uncertainty in the stock market," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 18-33.
    4. repec:pal:jintbs:v:49:y:2018:i:1:d:10.1057_s41267-017-0090-z is not listed on IDEAS
    5. Wildmer Daniel Gregori & Wildmer Agnese Sacchi, 2016. "Has the Grexit news spilled over into euro area financial markets? The role of domestic political leaders, supranational executives and institutions," Mo.Fi.R. Working Papers 134, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    6. Elif C. Arbatli & Steven J. Davis & Arata Ito & Naoko Miake & Ikuo Saito, 2017. "Policy Uncertainty In Japan," NBER Working Papers 23411, National Bureau of Economic Research, Inc.
    7. Stavros Degiannakis & George Filis & George Palaiodimos, 2017. "Investments and uncertainty revisited: the case of the US economy," Applied Economics, Taylor & Francis Journals, vol. 49(45), pages 4521-4529, September.
    8. Lennard, Jason, 2018. "Uncertainty and the Great Slump," Lund Papers in Economic History 170, Lund University, Department of Economic History, revised 19 Jul 2018.
    9. Apergis, Nicholas, 2015. "Policy risks, technological risks and stock returns: New evidence from the US stock market," Economic Modelling, Elsevier, vol. 51(C), pages 359-365.
    10. repec:mes:emfitr:v:53:y:2017:i:7:p:1535-1546 is not listed on IDEAS
    11. Kazutaka Kurasawa, 2016. "Policy Uncertainty and Foreign Exchange Rates: The DCC-GARCH Model of the US / Japanese Foreign Exchange Rate," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 5(4), pages 1-19, December.
    12. Binder, Carola Conces, 2016. "Estimation of historical inflation expectations," Explorations in Economic History, Elsevier, vol. 61(C), pages 1-31.
    13. repec:eee:finana:v:57:y:2018:i:c:p:207-220 is not listed on IDEAS
    14. Peter Claeys, 2017. "Uncertainty spillover and policy reactions," Revista Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 35(82), pages 64-77, April.
    15. Peter Claeys, 2017. "Uncertainty spillover and policy reactions," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 35(82), pages 64-77, April.
    16. repec:lrk:eeaart:36_1_16 is not listed on IDEAS

    More about this item

    Keywords

    Economic uncertainty; Policy uncertainty; Business cycles; Measurement;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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