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Baker, Bloom and Davis “Measuring Economic Policy Uncertainty”

Baker, Bloom and Davis “Measuring Economic Policy Uncertainty”. Vaughan / Economics 639. Overview of Paper . Many commentators argue that uncertainty about taxes, government spending, and other policy matters deepened the recession of 2007-09.

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Baker, Bloom and Davis “Measuring Economic Policy Uncertainty”

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  1. Baker, Bloom and Davis“Measuring Economic Policy Uncertainty” Vaughan / Economics 639

  2. Overview of Paper Many commentators argue that uncertainty about taxes, government spending, and other policy matters deepened the recession of 2007-09. • To investigate this possibility, the authors develop a new index of policy-related economic uncertainty. • They then examine the potential impact of this uncertainty on real output, investment, and employment.

  3. Index of Policy Uncertainty Based on an average of three components: • The frequency of references to economic uncertainty and policy in the Google news media catalogue. • The number of federal tax code provisions set to expire. • The extent of disagreement among economic forecasters over future federal government purchases (fiscal policy) and the future CPI (monetary policy).

  4. Recent Trends in Policy Uncertainty

  5. Macroeconomic Impact Increase in policy uncertainty index equal to rise from 2006 to 2011 is followed by: • A peak decline in real GDP of -2.2% after four quarters. • A peak decline of private investment of 13% after three quarters. • A peak decline in aggregate employment of 2.5 million after 8 quarters.

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