Measuring economic policy uncertainty
In economics literature, uncertainty refers to agents such as consumers and
firms being unable to foresee the outcome of future events. Its presence and
level are central in several areas of economics, including decision, game and
portfolio theory.
A high degree of uncertainty affects decision-making and
potentially depresses firms’ investment choice or households’ consumption. 3 To
date, different measures have been proposed to proxy uncertainty in
macroeconomic indicators and financial markets, such as the VIX index to
gauge volatility in asset prices, or the range of macroeconomic forecasts by
professional forecasters.
Currently, many of these conventional uncertainty
measures are at historically low levels. Besides more “traditional” uncertainty
indicators, the future path of economic policies is essential to economic agents’
decision-making, too. With crucial measures by policymakers and central banks
during and after the financial crisis, economic policies are under ever-growing
scrutiny.
As a result, a better understanding and a reliable estimation of
economic policy uncertainty (EPU) has become particularly relevant in recent
years.
EU Forecast
euf:ba18.d:8/nws-01