COVID-Induced Economic Uncertainty

Scott Baker, Nicholas Bloom, Steven Davis and Stephen Terry

No 26983, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Assessing the economic impact of the COVID-19 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 of nearly 11 percent as of 2020 Q4, with a 90 percent confidence interval extending to a nearly 20 percent contraction. The exercise says that about half of the forecasted output contraction reflects a negative effect of COVID-induced uncertainty.

JEL-codes: D80 E17 E32 E66 L50 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-for, nep-mac and nep-ore
Note: EFG
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Citations: View citations in EconPapers (460)

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