Despite some shortcomings, and despite uncertainty surrounding the Brexit
referendum most likely being somewhat exaggerated, it is observable that the
European EPU index has a negative correlation with business cycles .
EPU tends to rise during economic downturns and to recede during
good times. If there is cyclicality in EPU, it has the potential to intensify the
negative impact of recessions and probably leads to a build-up of risks during
good times. In this vein, the extraordinarily high current levels of European EPU
should be monitored with care, considering likely negative externalities to other
parts of the economy.
Policymakers should act decisively during Brexit
negotiations and avoid prolonging and generating further policy-induced