Abstract
We quantify and study state-level economic policy uncertainty. Tapping digital archives for nearly 3500 local newspapers, we construct three monthly indexes for each state: one that captures state and local sources of policy uncertainty (EPU−S), one that captures national and international sources (EPU−N), and a composite index that captures both. EPU−S rises around gubernatorial elections and own-state episodes like the California electricity crisis of 2000–01 and the Kansas tax experiment of 2012. EPU−N rises around presidential elections and in response to 9–11, Gulf Wars I and II, the 2011 debt-ceiling crisis, the 2012 fiscal cliff episode, and federal government shutdowns. Close elections elevate policy uncertainty much more than the average election. VAR models fit to pre-COVID data imply that upward shocks to own-state EPU foreshadow weaker economic performance in the state, as do upward EPU shocks in contiguous states. The COVID-19 pandemic drove huge increases in policy uncertainty and unemployment, more so in states with stricter government-mandated lockdowns.
Original language | English (US) |
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Pages (from-to) | 81-99 |
Number of pages | 19 |
Journal | Journal of Monetary Economics |
Volume | 132 |
DOIs | |
State | Published - Nov 2022 |
Keywords
- COVID-19 pandemic
- Elections and uncertainty
- Home prices
- Housing starts
- Policy uncertainty
- Spatial spillovers
- State-level economic performance
- Unemployment
ASJC Scopus subject areas
- Finance
- Economics and Econometrics