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

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.