Caveats in the measurement of the EPU index
Before delving deeper into the implications, it is important to discuss some
caveats in the measurement of the EPU index which may have pushed it up
ecently.
For the European EPU index, BBD weights EU countries equally and
does not distinguish between local and international policy uncertainty. Put
differently, German newspapers writing about Brexit and associated economic
uncertainty in the UK is counted towards an increasing EPU in Germany and
contributes to the European index. International news coverage in local
newspapers probably inflates index values during major events such as Brexit.
Another caveat is the representativeness of the newspapers taken for the index
construction. BBD uses two major newspapers from each country which usually
have a specific economics and finance focus (and as such tend to be more
internationally oriented).
During episodes of economic uncertainty, this may
magnify the surge in EPU, too.
EU Forecast
euf:ba18.d:13/nws-01