Democratic decision-making is often messy and fraught with uncertainty about outcomes and economic consequences. Autocratic regimes also take actions and pursue policies that create economic uncertainty. In this talk, Steven J. Davis considered simple text-based methods for quantifying policy uncertainty and assessing its relationship to economic outcomes.
Davis and coauthors Nicholas Bloom of Stanford University and Scott R. Baker of Northwestern University developed a novel index of policy uncertainty, using automated analysis of key terms in news media stories and other sources to measure fluctuating levels of uncertainty about future economic conditions. Quantifying the level of uncertainty was a key first step to analyzing its impact on economic behavior, and the index is now widely used to assess the costs of policy uncertainty.
Building on that work, Davis has now developed an index of global policy uncertainty and tracked the level over time.