Tracking Uncertainty Through the Relative Sentiment Shift Series

64 Pages Posted: 6 Mar 2019

See all articles by Seohyun Lee

Seohyun Lee

International Monetary Fund (IMF) - Asia and Pacific Department; Bank of Korea - Economic Research Institute

Rickard Nyman

University College London - Centre for the Study of Decision-Making Uncertainty

Date Written: March 6, 2019

Abstract

We examine the causal dynamic relationship between economic policy uncertainty and economic activities, using a Local Projection model with external instruments. Based on the psychological theory of conviction narratives, we construct a Relative Sentiment Shift (RSS) index and use it as an instrumental variable that captures exogenous variations in economic policy uncertainty. Our empirical results suggest that an increase in economic policy uncertainty induces recessionary pressures in the economy: reductions in production and employment, a sharp stock market downturn, and a constrained financial market.

Keywords: Economic narratives, Algorithmic text analysis, Uncertainty, Dynamic causal effect, Local projection, IV Regression

JEL Classification: E2, D81, C1

Suggested Citation

Lee, Seohyun and Nyman, Rickard, Tracking Uncertainty Through the Relative Sentiment Shift Series (March 6, 2019). Bank of Korea WP 2019-12. Available at SSRN: https://ssrn.com/abstract=3347434 or http://dx.doi.org/10.2139/ssrn.3347434

Seohyun Lee (Contact Author)

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Rickard Nyman

University College London - Centre for the Study of Decision-Making Uncertainty ( email )

Gower Street
London, WC1 6BT
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
22
Abstract Views
181
PlumX Metrics