COVID-Induced Economic Uncertainty   [open pdf - 0B]

From the Abstract: "Assessing the economic impact of the COVID-19 [coronavirus disease 2019] pandemic is essential for policymakers, but challenging because the crisis has unfolded with extreme speed. We identify three indicators - stock market volatility, newspaper-based economic uncertainty, and subjective uncertainty in business expectation surveys - that provide real-time forward-looking uncertainty measures. We use these indicators to document and quantify the enormous increase in economic uncertainty in the past several weeks. We also illustrate how these forward-looking measures can be used to assess the macroeconomic impact of the COVID-19 crisis. Specifically, we feed COVID-induced first-moment and uncertainty shocks into an estimated model of disaster effects developed by Baker, Bloom and Terry (2020). Our illustrative exercise implies a year-on-year contraction in U.S. real GDP [Gross Domestic Product] of nearly 11 percent as of 2020 Q4 [quarter 4], with a 90 percent confidence interval extending to a nearly 20 percent contraction. The exercise says that about 60 percent of the forecasted output contraction reflects a negative effect of COVID-induced uncertainty."

Becker Friedman Institute
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Becker Friedman Institute: https://bfi.uchicago.edu/
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