We consider several economic uncertainty indicators for the US and UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future GDP growth. Three 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 rise of around 100% (relative to January 2020) in two-year implied volatility on the S&P 500 and subjective uncertainty around year-ahead sales for UK firms 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 the difference in uncertainty measures between Wall Street and Main Street.

More Research From These Scholars

BFI Working Paper Mar 25, 2019

Policy News and Stock Market Volatility

Scott R. Baker, Nicholas Bloom, Steven J. Davis, Kyle Kost
Topics:  Financial Markets, Fiscal Studies
BFI Working Paper Aug 5, 2019

Policy Uncertainty in Japan

Elif C. Arbatli, Steven J. Davis, Arata Ito, Naoko Miake
Topics:  Financial Markets, Monetary Policy
White Paper Jun 16, 2020

The Unprecedented Stock Market Reaction to COVID-19

Scott R. Baker, Nicholas Bloom, Steven J. Davis, Kyle Kost, Marco Sammon, Tasaneeya Viratyosin
Topics:  Financial Markets, COVID-19