Uncertainty surrounding economic policies is affecting markets as seldom
before. This is closely followed by the financial sector, businesses and even by
households. Thanks to advancement in textual analysis, it is now possible to
quantify uncertainty trends in economic policies.
Recently, economic policy uncertainty (EPU) in Europe has risen to
extraordinarily high levels. EPU can create negative externalities for the
economy, as it is negatively correlated with the business cycle. It has the
potential to intensify the impact of recessions and to contribute to the build-up of
risks during good times.