Economic uncertainty before and during the COVID-19 pandemic

Altig, Dave; Baker, Scott; Barrero, Jose Maria; Bloom, Nicholas; Bunn, Philip; Chen, Scarlet; Davis, Steven J.; Leather, Julia; Meyer, Brent; Mihaylov, Emil; Mizen, Paul; Parker, Nicholas; Renault, Thomas; Smietanka, Pawel; Thwaites, Gregory

Abstract

We consider several economic uncertainty indicators for the US and UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based policy uncertainty, Twitter chatter about economic uncertainty, subjective uncertainty about business growth, forecaster disagreement about future GDP growth, and a model-based measure of macro uncertainty. Four results emerge. First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record. Second, peak amplitudes differ greatly – from a 35% rise for the model-based measure of US economic uncertainty (relative to January 2020) to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: Implied volatility rose rapidly from late February, peaked in mid-March, and fell back by late March as stock prices began to recover. In contrast, broader measures of uncertainty peaked later and then plateaued, as job losses mounted, highlighting differences between Wall Street and Main Street uncertainty measures. Fourth, in Cholesky-identified VAR models fit to monthly U.S. data, a COVID-size uncertainty shock foreshadows peak drops in industrial production of 12–19%.

Citation

Altig, D., Baker, S., Barrero, J. M., Bloom, N., Bunn, P., Chen, S., …Thwaites, G. (2020). Economic uncertainty before and during the COVID-19 pandemic. Journal of Public Economics, 191, Article 104274. https://doi.org/10.1016/j.jpubeco.2020.104274

• Journal Article Type: Article
• Acceptance Date: Aug 26, 2020
• Online Publication Date: Sep 9, 2020
• Publication Date: Nov 1, 2020
• Deposit Date: Oct 6, 2020
• Publicly Available Date: Sep 10, 2022
• Journal: Journal of Public Economics
• Print ISSN: 0047-2727
• Peer Reviewed: Peer Reviewed
• Volume: 191
• Article Number: 104274
• DOI: https://doi.org/10.1016/j.jpubeco.2020.104274
• Keywords: Forward-looking uncertainty measures; Volatility; COVID-19; Coronavirus
• Public URL: https://nottingham-repository.worktribe.com/output/4931914
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0047272720301389
• Additional Information: This article is maintained by: Elsevier; Article Title: Economic uncertainty before and during the COVID-19 pandemic; Journal Title: Journal of Public Economics; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jpubeco.2020.104274; Content Type: article; Copyright: Crown Copyright © 2020 Published by Elsevier B.V. All rights reserved.