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Economic Uncertainty before and during the COVID-19 Pandemic

Author

Listed:
  • David E. Altig
  • Scott R. Baker
  • Jose Maria Barrero
  • Nick Bloom
  • Philip Bunn

    ()

  • Scarlet Chen

    ()

  • Steven J. Davis
  • Brent Meyer
  • Emil Mihaylov
  • Paul Mizen
  • Nicholas B. Parker
  • Pawel Smietanka

    ()

  • Gregory Thwaites

    ()

Abstract

We consider several economic uncertainty indicators for the United States and the UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future gross domestic product growth. Three 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 an 80 percent rise (relative to January 2020) in two-year implied volatility on the S&P 500 to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: implied volatility rose rapidly from late February and peaked in mid-March, falling 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 the difference in uncertainty measures between Wall Street and Main Street.

Suggested Citation

  • David E. Altig & Scott R. Baker & Jose Maria Barrero & Nick Bloom & Philip Bunn & Scarlet Chen & Steven J. Davis & Brent Meyer & Emil Mihaylov & Paul Mizen & Nicholas B. Parker & Pawel Smietanka & Gre, 2020. "Economic Uncertainty before and during the COVID-19 Pandemic," FRB Atlanta Working Paper 2020-9, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:88474
    DOI: 10.29338/wp2020-09
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    References listed on IDEAS

    as
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    Cited by:

    1. Islam, Asadul & Pakrashi, Debayan & Vlassopoulos, Michael & Wang, Liang Choon, 2020. "Stigma and Misconceptions in the Time of the COVID-19 Pandemic: A Field Experiment in India," IZA Discussion Papers 13995, Institute of Labor Economics (IZA).
    2. Mirela Miescu & Raffaele Rossi, 2020. "The covid-induced uncertainty shocks," The School of Economics Discussion Paper Series 2013, Economics, The University of Manchester.
    3. Hasin Md. Muhtasim Taqi & Humaira Nafisa Ahmed & Sumit Paul & Maryam Garshasbi & Syed Mithun Ali & Golam Kabir & Sanjoy Kumar Paul, 2020. "Strategies to Manage the Impacts of the COVID-19 Pandemic in the Supply Chain: Implications for Improving Economic and Social Sustainability," Sustainability, MDPI, Open Access Journal, vol. 12(22), pages 1-25, November.
    4. VAN DER WIELEN Wouter & BARRIOS Salvador, 2020. "Fear and Employment During the COVID Pandemic: Evidence from Search Behaviour in the EU," JRC Working Papers on Taxation & Structural Reforms 2020-08, Joint Research Centre (Seville site).
    5. Stephen J. Davis & Dingqian Liu & Xuguang Simon Sheng, 2020. "Stock Prices, Lockdowns, and Economic Activity in the Time of Coronavirus," Working Papers 2020-156, Becker Friedman Institute for Research In Economics.
    6. Steven J. Davis & Dingqian Liu & Xuguang Simon Sheng, 2021. "Stock Prices, Lockdowns, and Economic Activity in the Time of Coronavirus," NBER Working Papers 28320, National Bureau of Economic Research, Inc.
    7. Adian,Ikmal & Doumbia,Djeneba & Gregory,Neil & Ragoussis,Alexandros & Reddy,Aarti & Timmis,Jonathan David, 2020. "Small and Medium Enterprises in the Pandemic : Impact, Responses and the Role of Development Finance," Policy Research Working Paper Series 9414, The World Bank.
    8. Tatiana Didier & Federico Huneeus & Mauricio Larrain & Sergio L. Schmukler, 2020. "Financing Firms in Hibernation during the COVID-19 Pandemic," Cowles Foundation Discussion Papers 2233R, Cowles Foundation for Research in Economics, Yale University, revised Sep 2020.
    9. Jose Maria Barrero & Nicholas Bloom & Steven J. Davis, 2020. "COVID-19 Is Also a Reallocation Shock," Working Papers 2020-60, Becker Friedman Institute for Research In Economics.
    10. Andrea Carriero & Todd E. Clark & Massimiliano Marcellino & Elmar Mertens, 2020. "Measuring Uncertainty and Its Effects in the COVID-19 Era," Working Papers 202032, Federal Reserve Bank of Cleveland.
    11. Lautenbacher, Stefan, 2020. "Subjective Uncertainty, Expectations, and Firm Behavior," MPRA Paper 103516, University Library of Munich, Germany.
    12. Pavel Kotyza & Katarzyna Czech & Michał Wielechowski & Luboš Smutka & Petr Procházka, 2021. "Sugar Prices vs. Financial Market Uncertainty in the Time of Crisis: Does COVID-19 Induce Structural Changes in the Relationship?," Agriculture, MDPI, Open Access Journal, vol. 11(2), pages 1-16, January.
    13. Buchheim, Lukas & Krolage, Carla & Link, Sebastian, 2020. "Sudden Stop: When Did Firms Anticipate the Potential Consequences of COVID-19?," IZA Discussion Papers 13457, Institute of Labor Economics (IZA).
    14. Nicholas Bloom & Philip Bunn & Paul Mizen & Pawel Smietanka & Gregory Thwaites, 2020. "The Impact of Covid-19 on Productivity," NBER Working Papers 28233, National Bureau of Economic Research, Inc.
    15. Adams, Samuel & Adedoyin, Festus & Olaniran, Eniola & Bekun, Festus Victor, 2020. "Energy consumption, economic policy uncertainty and carbon emissions; causality evidence from resource rich economies," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 179-190.
    16. Nguyen Doan & Canh Phuc Nguyen & Ilan Noy & Yasuyuki Sawada, 2020. "The Economic Impacts of a Pandemic: What Happened after SARS in 2003?," CESifo Working Paper Series 8687, CESifo.

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    More about this item

    Keywords

    volatility; COVID-19; coronavirus; forward-looking uncertainty measures;
    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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