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What’s worrying the markets?

More data on policy uncertainty

For some time now, FRED has offered various economic uncertainty indices from the work of professors Baker, Bloom, and Davis. We now have even more detailed data on uncertainty about specific economic policy categories; a handful are shown in the graph above.

Before we dive into any interpretations, we need to first understand the data. Basically, they track the number of mentions of specific economic policies in over 2,000 U.S. newspapers. Some policies are considered more important than others by journalists and the general public; some are perennial favorites and some are rarely discussed.

Overall, higher values likely show how worried the press, and probably the general public, are about that aspect of economic policy. High values are a combination of high uncertainty and the importance of the policy. A policy considered less important will be less likely to spike up even when there’s a lot of uncertainty about it.

Back to the graph: We selected five categories. The blue line clearly has the most action lately: It depicts uncertainty about trade policy, which is obviously tied to the ongoing trade war with China and other countries. The data also show significant trade policy uncertainty around 1994, the year NAFTA was introduced. A regular standout is the series in red—sovereign debt and currency crises—which has mostly to do with the recurring threats of government shutdowns when Congress struggles to pass a budget. The line in…teal, let’s call it, depicts uncertainty about financial regulation, which is clearly visible after the 2007 Financial Crisis, when Congress worked out the Dodd-Frank Act. Health care policy, in purple, has regularly been in the news since 2008 thanks to Obamacare. Finally, government spending, in light green, appears mostly in the years after the Financial Crisis as TARP was being implemented.

How this graph was created: Start from the Economic Policy Uncertainty index release table: Select “United States Indices,” then “Monthly Indices,” and then “Categorical…” Check the series you want and click “Add to Graph.”

Suggested by Christian Zimmermann.


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